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Mortgage Interest Rates

Discussion in 'Home and Garden' started by Psycho Sonny, 11 Mar 2020.

  1. Psycho Sonny

    Caporegime

    Joined: 21 Jun 2006

    Posts: 36,418

    Looking at that chart my interpretation is.

    Target / average is 3-5% overall.

    During a recession it's normally 2%.

    During the 70's and 80's there was a crazy boom where it went up to crazy levels averaging 15% with it going between 10-20%.

    Since 2008 it's went crazy the other way where we are into unknown and unprecedented territory staying below 1% for the first time ever and for over a decade.

    Realistically speaking it should only be able to go up but we are still far off the opposite swing the other way of the 70's and 80's.

    If I was a bookies I would say it's 3-1 that they will go negative. Evens that they go up and 1-2 that they hover around the 0% mark.

    It's impossible to say and the above saying go for a tracker. If they do swing upwards to curb inflation you would be crying.

    The way I see it is they can't go much cheaper. So no real benefit to a tracker. They have a great chance of staying put and a small chance of going up.

    I'm looking to fix long, take all the extra cash I would normally overpay and invest it in stocks and shares and commodities. I'm in the lowest band and plenty of equity I'll probably take £50k out when I remortgage and still be in the lowest band.
     
    Last edited: 6 Mar 2021
  2. b0rn2sk8

    Sgarrista

    Joined: 9 Mar 2003

    Posts: 7,847

    Why do you project they will go negative? Just last week at the budget they are expecting the economy to rebound to within a few % of where it would have been if Covid didn’t happen within 2 years.

    Negative interest rates would indicate things are getting worse not better.
     
  3. DanTheMan

    Mobster

    Joined: 11 Oct 2005

    Posts: 4,432

    Location: Manchester, UK

    Interest that for our LTV, a 5 year fix is currently cheaper than a 2 year fix. 60% LTV, no fees, virgin offer 1.68% on a 5 year fix and Coventry offer 1.75% 2 year fix.

    Suggests to me that the thinking is these interest rates are here to stay for a good while yet.

    I can't see the economy rebounding anywhere near enough to cause a huge adjustment in interest rates. Unless of course inflation goes wild for some reason.
     
  4. Psycho Sonny

    Caporegime

    Joined: 21 Jun 2006

    Posts: 36,418

    I didn't. I said it's a 3-1 shot. The odds of them staying put and going up I had at better odds.
     
  5. Jimbo Mahoney

    Soldato

    Joined: 18 Oct 2002

    Posts: 6,464

    Not aiming this at anyone in particular, but mortgage rates are not determined by the BoE Base Rate, but the open market.

    Correct me if I'm wrong, but here is how I believe it works and, remember - "investor" = anyone with money and "government" = always spend more than they bring in, so always a debtor / borrower from those with money.

    • BoE tries to set overall interest rates by defining the base rate.
    • Most products, including mortgages, will be nudged in that direction.
    • However, the rate of borrowing for the entire economy is mainly influenced by the market rate.
    • This market rate is, approximately, the rate that the safest of all assets, government bonds (Gilts in the UK), need to pay to attract investors.
    • When investors decide that the UK government is a safe, reliable borrower, the government can "get away" with paying investors less (e.g. rates go lower).
    • When investors decide that they don't want to lend money to the government, the government will be forced to pay a higher rate of interest.
    • If this happens, the BoE can reduce interest rates, or it could buy government bonds to try and keep the interest rate down (as we have seen for the past 10+ years).
    • Nobody knows what is going to happen when only the BoE is buying government bonds, but there are (at least) two possibilities:

    1) The government can force people (e.g. pension funds) to buy government bonds.
    2) The government admits defeat and lets the market set the rate, which of course would need to be higher to attract investors.

    If #1 happens, it's a Bad Thing from a liberal perspective - see other examples throughout history where a government resorts to financial repression.
    If #2 happens, it's a Bad Thing from a borrower's perspective because they will end up paying higher rates of interest on their debt. The government is the biggest borrower of them all.

    From what we've seen so far, the goverment is likely to do #1 before it resorts to #2.

    So, interest rates will remain low. Until they don't.
     
  6. Bug One

    Capodecina

    Joined: 18 Oct 2002

    Posts: 10,891

    Location: Sandwich, Kent

    IMO, Interest rates will stay low until Labour get in. The Conservatives know that a lot of people are now tied into mortgages where, if rates suddenly jump - will see financial hardship. That's not good for their core voting demographic.

    Labour on the other hand will offer a very differant fiscal picture. If you give all public sector workers a 12.5% pa pay rise (as the Unions are currently asking for) - the resulting effect will be a massive increase in interest rates to match it.

    It's inevitable that Labour will eventually get in - I expect at the next election. After the massive cost of this panedmic, finances are going to have to be clawed back somehow. Expect a period of small increases in wages, and higher taxes. People won't like it, and labour will promise miracles - and people will vote for it.

    I just hope I can fix for another 5 years before it happens.
     
  7. b0rn2sk8

    Sgarrista

    Joined: 9 Mar 2003

    Posts: 7,847

    Not sure what labour has anything to do with it. They won’t be offering public sector workers a 12% pay rise either. Unions ask for that every year, year in year out regardless of government. That’s their role, get the most for their members, if they went in with what they were willing to settle on they wouldn’t even get close to it.

    That said, I can’t see rates rising anytime soon.
     
  8. Bug One

    Capodecina

    Joined: 18 Oct 2002

    Posts: 10,891

    Location: Sandwich, Kent

    Because Unions are a significant benefactor of Labour. They don't offer all that money without expecting something in return.
     
  9. 413x

    Capodecina

    Joined: 13 Jan 2010

    Posts: 22,287

    Location: Llaneirwg

    If rates go up to anything like 5 percent you'd have a house price crash for sure.

    I'm on 1.78 which at the time was 85 percent ltv I think (first home)
    Got two more years left.

    If I was doing it now, and I was on my own and didn't plan to sell I'd absolutely be fixing for 5 years . It's unlikely to go much lower. But it could go much much higher. Hopefully unlikely. But you never know
     
  10. MikeTheNative

    Sgarrista

    Joined: 17 Jun 2012

    Posts: 8,704

    Location: South Wales

    This was our thinking, we got 1.59% fixed for 5 years. It could possibly go down further but it would be max .05& while there is the possibility of it going up by a few %
     
  11. 413x

    Capodecina

    Joined: 13 Jan 2010

    Posts: 22,287

    Location: Llaneirwg

    For a lot of people on the edge.
    Sure you could save a lot by it going lower.
    But a big spike you could lose your home.
     
  12. Psycho Sonny

    Caporegime

    Joined: 21 Jun 2006

    Posts: 36,418

    That rate you got sounds ridiculously good.

    I was 80% LTV 5 years ago and I was given 2.84%. So at 85% to be given 1.78% is ridiculously good.

    A week after I put my application in brexit happened and I think the price went down to 2.64% at my LTV.

    It went down again a few months later which is likely during the period so around 4 years ago you must have gotten your deal or thereafter where they have remained low.

    You were at the right place at the right time.

    I'm now at the point where I'm being offered 1.49% that's nearly half what I'm currently at.

    I think I'll be fixing for 5 years. Only a few more weeks until I can. 1st of April but it won't kick in until August or September.

    So I'm going to ask if during that time if something else happens can I cancel and re-apply for another deal. Which gives me 5 months to see which way things go.
     
  13. b0rn2sk8

    Sgarrista

    Joined: 9 Mar 2003

    Posts: 7,847

    Theres zero evidence that would happen or that it’s even a bad thing. That’s a ‘they’lll ruin the economy again’ type argument. The BBC reported the ex head of the home office was on £150k when he settled with the gov over Patel. That’s nothing for someone with that level of responsibility, the private sector would pay 2-10X that.

    What happened the last time labour were in power?

    Interest rates are set by the BoE which is sort of disconnected from the government. It’s ultimately driven by the market and inflation rather than any particular flavour of political party. If anything I would have thought that high rates would be more of a conservative thing, they make rich people richer at the end of the day.
     
  14. Psycho Sonny

    Caporegime

    Joined: 21 Jun 2006

    Posts: 36,418

    I think both do.

    Low rates means low cost of borrowing which can be used to grow your wealth.

    You can also invest rather than pay off debts.

    High interest rates again the rich are better off and the poorer suffer. As you then get better returns on savings and investments tend to return much better also and assets increase in value.

    I don't think there is ever a scenario where poor people are ever better off. Because low interest rates means more affordability so prices increase.

    Rates are a big topic because so many are walking a tight rope both rich and poor who have overextended hoping that they get wage rises and bonuses consistently and prices keep rising so their equity magically increases.
     
  15. 413x

    Capodecina

    Joined: 13 Jan 2010

    Posts: 22,287

    Location: Llaneirwg

    This was just before covid hit. Feb 2020
    There were actually even better rates for 5 years. But at the time I couldn't see 5 years into the future.

    If everything stayed the same I would be down to 75 (with a little top up of couple of k) at renewal. 75 seems to be where a good saving comes about o on rates
    Probably could move from 30 to 20 years at that point if it was sensible.
     
  16. dLockers

    Mobster

    Joined: 21 Jan 2010

    Posts: 4,400

    If I am in a 5 year fixed, do I have any room for maneuvering for reducing my total cost?

    I'm 2 years in, on a property valued at 450k with a balance of 382.7k. My LTV is now 85% but actually the valuation of the property has likely gone up as well (new bathroom, kitchen, windows). Is there merit in revaluing the house? Would I stand to gain anything?

    Overpayments will begin inline with T&Cs once other half goes back to work in May.
     
  17. b0rn2sk8

    Sgarrista

    Joined: 9 Mar 2003

    Posts: 7,847

    When you re-mortgage the bank will likely do a ‘desk valuation’ based on sold prices of similar properties in the same area. They will not take into account new fittings as in reality they add very little in terms of value.

    The only thing you can really do is pay down the mortgage as fast as possible.
     
  18. dLockers

    Mobster

    Joined: 21 Jan 2010

    Posts: 4,400

    Makes sense, thanks. I guess LTV is only useful when remortgaging?
     
  19. b0rn2sk8

    Sgarrista

    Joined: 9 Mar 2003

    Posts: 7,847

    Pretty much and of course when you take it out in the first place.
     
  20. Psycho Sonny

    Caporegime

    Joined: 21 Jun 2006

    Posts: 36,418

    Should have fixed for 2 years then used the lower LTV at that point for a better deal.

    Unfortunately people don't give this information or suggestions when people ask how long they should be fixing for.

    It's always best to fix shorter terms if there's a good chance rates won't increase and your LTV is high.