Interest rates

[Mansfieldman750]

Base rate up 0.25% again. Last increase ? One more ?
Last April’s energy price increase drops out now so the next inflation figure announced on May 23 will look a lot better.
If I had to bet on it I’d say we’re done with increases now.

 

[Amarillo]

Base rate up 0.25% again. Last increase ? One more ?
Last April’s energy price increase drops out now so the next inflation figure announced on May 23 will look a lot better.
If I had to bet on it I’d say we’re done with increases now.

It is shocking. Up from 0.1% to 4.5% is a forty-five fold increase since 16 December 2021. If they continue rising at this pace, interest rates will be over 200% by October 2024.

I have three interest only mortgages coming up for renewal, two on 2 November 2023 and one on 31 December 2023. Unless I can reduce the amount I owe through a part redemption, my monthly interest payments are likely to go up 2 1/2 times. My only saviour is that my LTV is currently 86% and I think I can increase that to 90%.

 

[soulstyledevon]

It is shocking. Up from 0.1% to 4.5% is a forty-five fold increase since 16 December 2021. If they continue rising at this pace, interest rates will be over 200% by October 2024.

The pace has been brutal. I have friends my age (early forties) who have been caught off guard by the rapid increase in mortgage repayments.
They’re still fortunate enough to afford their new rates, but I’ve noticed some of the toys have disappeared, such as the weekend car etc…

 

[Amarillo]

The pace has been brutal. I have friends my age (early forties) who have been caught off guard by the rapid increase in mortgage repayments.
They’re still fortunate enough to afford their new rates, but I’ve noticed some of the toys have disappeared, such as the weekend car etc…

I met someone last weekend who bought two flats last June with the inheritance from her father, borrowing 75% for each flat. She originally wanted to buy one with a 50% loan but was advised to stretch herself to two. If she were to update her mortgage deal now she’d be paying three times her current interest only payments.

The good news for her is that she has a five year fixed rate, so is secure until summer 2027. But with the double whammy of falling house prices and rising interest rates she could be in for a really rough landing in a few years.

But at least she has the time to plan and prepare.

Soon after I bought my first home my mortgage rate leapt to 15.75%.

 

[Lambeth Cali]

It is terrible they don’t teach basic personal finance to everybody at school.

25 years ago I was told to always work out what my payments would be if mortgage rates went to 10% and make sure I was confident I could manage to pay it for upto a year or I could lose my home.

 

[johnyboy]

Short term memories

 

[Mansfieldman750]

I met someone last weekend who bought two flats last June with the inheritance from her father, borrowing 75% for each flat. She originally wanted to buy one with a 50% loan but was advised to stretch herself to two. If she were to update her mortgage deal now she’d be paying three times her current interest only payments.

The good news for her is that she has a five year fixed rate, so is secure until summer 2027. But with the double whammy of falling house prices and rising interest rates she could be in for a really rough landing in a few years.

But at least she has the time to plan and prepare.

Soon after I bought my first home my mortgage rate leapt to 15.75%.

How did she stretch herself ? 50% of X is the the same as 25% of 2X
She put in the same amount of her own money but borrowed 3 times the amount of someone else’s money.
I’m sorry but it looks to me as if she got a bit greedy and is now suffering from buyer’s remorse.

 

[soulstyledevon]

It is terrible they don’t teach basic personal finance to everybody at school.

25 years ago I was told to always work out what my payments would be if mortgage rates went to 10% and make sure I was confident I could manage to pay it for upto a year or I could lose my home.

I have a rule. Some may say silly…?
But when I get paid each month, the first bill I pay is myself. I pay myself a set amount each month. Forget everyone else, i’m first and the most important, and then the bills.
This goes into a savings account which I can access at any point.

 

[The Tall Luthier]

I have a rule. Some may say silly…?
But when I get paid each month, the first bill I pay is myself. I pay myself a set amount each month. Forget everyone else, i’m first and the most important, and then the bills.
This goes into a savings account which I can access at any point.

The number of tenants I had defaulting during Covid was incredibly low. The psyche seems to be that I must pay my rent before everything else. I think renters could learn a thing or two from your approach.

 

[66tim99]

Short term memories

I wonder what a ‘normal’ interest rate is. Feels like 3-4%?

 

[66tim99]

The number of tenants I had defaulting during Covid was incredibly low. The psyche seems to be that I must pay my rent before everything else. I think renters could learn a thing or two from your approach.

That’s my approach, taught by my Dad. Pay for your roof first, what’s left is yours. (It’s been a massive liberation paying the mortgage off!)
Why would you advise a renter otherwise?

 

[The Tall Luthier]

That’s my approach, taught by my Dad. Pay for your roof first, what’s left is yours. (It’s been a massive liberation paying the mortgage off!)
Why would you advise a renter otherwise?

Obviously it’s not in my interests for renters to default. But the idea that in tough times that your first priority should be to pay the rich people first is curious, no?

It smacks of time of deference, doffing the cap, keeping the squire on side.

Obvs if it’s not tough for you, pay the rent you agreed in a legal contract.

 

[66tim99]

Obviously it’s not in my interests for renters to default. But the idea that in tough times that your first priority should be to pay the rich people first is curious, no?

It smacks of time of deference, doffing the cap, keeping the squire on side.

Obvs if it’s not tough for you, pay the rent you agreed in a legal contract.

Even if it is tough for you, the roof is the last thing I’d want to lose. Don’t pay your rent for three months, your landlord will be looking to extract you. Don’t pay for 1 month and next month is looking grim…

 

[larrylamb]

I wonder what a ‘normal’ interest rate is. Feels like 3-4%?

Over the last 50 years the average interest rate has been just over 7%. High in the 70's and 80's but exceptionally low for the last 15 years. Too many people have not accounted for rates being back at a norm of 4-5.5%.

 

[Lambeth Cali]

I wonder what a ‘normal’ interest rate is. Feels like 3-4%?

I was always taught 10% is very possible and historically that is correct. When I was foolish enough in my 20s to borrow to buy silly cars I remember 9.9% was the normal personal loan rate. I know mortgages were less than that but not by much. In 1997 I got a very long term fix at 5.15% which my financial advisor thought was tremendous.
We currently have a boss of the Bank of England who admits he has no control over inflation. You have to cover yourself.

 

[Mansfieldman750]

I was always taught 10% is very possible and historically that is correct. When I was foolish enough in my 20s to borrow to buy silly cars I remember 9.9% was the normal personal loan rate. I know mortgages were less than that but not by much. In 1997 I got a very long term fix at 5.15% which my financial advisor thought was tremendous.
We currently have a boss of the Bank of England who admits he has no control over inflation. You have to cover yourself.

Yes Black Wednesday, 16 September 1992. The base rate went up from 10% to 12% in the morning then 15% in the afternoon. Them were the days.

 

[Elmo3]

5% always seemed very low. What we’ve had is well over a decade of ‘emergency’ IR’s. Some decided to leverage up at these emergency low levels, thinking it was the new normal. It’s time to pay the piper.

 

[soulstyledevon]

That’s my approach, taught by my Dad. Pay for your roof first, what’s left is yours. (It’s been a massive liberation paying the mortgage off!)
Why would you advise a renter otherwise?

The first bill I pay, is myself. Standing order every month into a different account.
Why go to work, to hand all your hard earned to other people…?
I started work at 13 and even back then, 15/20% of earnings went into a pot.
I’ve never stopped paying the pot.

The important thing here. Once you’ve paid yourself (let’s say 10%) what ever is left , is what you live on.
So when trying to calculate rent costs, car bills etc, I live off what I can truly afford.
It’s a complete different mindset on how to manage and live comfortably off your salary.

Probably why in 1999 at 19/20 years of age, I could afford to buy my own house, I didn’t need to think about saving for a deposit, I already had it.

 

[66tim99]

The first bill I pay, is myself. Standing order every month into a different account.
Why go to work, to hand all your hard earned to other people…?
I started work at 13 and even back then, 15/20% of earnings went into a pot.
I’ve never stopped paying the pot.

The important thing here. Once you’ve paid yourself (let’s say 10%) what ever is left , is what you live on.
So when trying to calculate rent costs, car bills etc, I live off what I can truly afford.
It’s a complete different mindset on how to manage and live comfortably off your salary.

Probably why in 1999 at 19/20 years of age, I could afford to buy my own house, I didn’t need to think about saving for a deposit, I already had it.

Well I go to work to hand my money to other people (landlord, Sainsbury's, pub landlord etc) so I can live. There is no way I'd be behind on my rent with money in the bank.

I see your approach - its fair enough, in fact similar to my Grandpa's teaching to "put 10% of anything I earn away and pretend you don't have it". That advice from definitely contributed to me having a mortgage deposit (albeit when I was 24). I've taught that to my now 13 year old daughter, who is now able to pay for herself to go on another holiday with a friend this year (I've paid 50%, and didn't tell her that I'd have paid it all if she had no money!) - she feels good to know she's 'earned' it I think.

Semantics really, as my rent (later mortgage) and 10% savings used to go out the day I was paid. But it is the money left over from all the regular monthly 'essentials' (including rent and 10% savings) that I live off, rather than the money that I 'pay myself'.

Whatever it is, its good to have a system that enables you to understand what is available for one to wee wee up the wall!

 

[Amarillo]

How did she stretch herself ? 50% of X is the the same as 25% of 2X
She put in the same amount of her own money but borrowed 3 times the amount of someone else’s money.
I’m sorry but it looks to me as if she got a bit greedy and is now suffering from buyer’s remorse.

The sums added up.

Let's assume she had £100,000 to splurge, and each flat cost £200,000 with a yield of 5%.

One flat. Income £10,000 PA. Mortgage interest + 2.29% £2,290. Profit £7,710.
Two flats. Income £20,000 PA. Mortgage interest + 2.49% £7,470. Profit £12,530.

However, if mortgage interest rates rise to 5.29% and 5.49% for 25% LTV and 50% LTV the sums look slightly different.

One flat. Income £10,000. Mortgage interest £5,290. Profit £4,710
Two flats. Income £20,000. Mortgage interest £16,470. Profit £3,530

Yes, it does appear that she was badly advised.

 

[Mansfieldman750]

The sums added up.

Let's assume she had £100,000 to splurge, and each flat cost £200,000 with a yield of 5%.

One flat. Income £10,000 PA. Mortgage interest + 2.29% £2,290. Profit £7,710.
Two flats. Income £20,000 PA. Mortgage interest + 2.49% £7,470. Profit £12,530.

However, if mortgage interest rates rise to 5.29% and 5.49% for 25% LTV and 50% LTV the sums look slightly different.

One flat. Income £10,000. Mortgage interest £5,290. Profit £4,710
Two flats. Income £20,000. Mortgage interest £16,470. Profit £3,530

Yes, it does appear that she was badly advised.

Borrow £100,000 and make £7,710 a year or borrow £300,000 and make £12,530 a year.
Take your pick. She could always have said she didn’t want to borrow £300,000.
As many others have said on this thread, leverage is a fantastic tool if the value of the underlying asset keeps going up and the cost of borrowing is low.
But it works both ways.
If the value of the underlying asset goes down and the cost of borrowing is high it can go horribly wrong.
For everyone who owns one house, the one they live in, faced by increased mortgage costs, I have every sympathy.
For those that own multiple houses, well, that’s business.

 

[Mansfieldman750]

Base rate up 0.25% again. Last increase ? One more ?
Last April’s energy price increase drops out now so the next inflation figure announced on May 23 will look a lot better.
If I had to bet on it I’d say we’re done with increases now.

I would have lost that bet. With the drop in inflation rate less than expected it looks like there are more interest rate increases to come.

 

[calibeach76]

I would have lost that bet. With the drop in inflation rate less than expected it looks like there are more interest rate increases to come.

I thought it was a brave call from you when you made it!!!

 

[soulstyledevon]

I would have lost that bet. With the drop in inflation rate less than expected it looks like there are more interest rate increases to come.

They just mentioned that on Jeremy Vine. Cost of food still rocketing and therefore further rate rises on the way…

 

[HowieDog]

Base rate up 0.25% again. Last increase ? One more ?
Last April’s energy price increase drops out now so the next inflation figure announced on May 23 will look a lot better.
If I had to bet on it I’d say we’re done with increases now.

Prob one more. Although market forecast peak 4.95% inflation will drop

They just mentioned that on Jeremy Vine. Cost of food still rocketing and therefore further rate rises on the way…

the main issue is core inflation which actually increased.
Market forecast now peaks at 5.5%