Anyone care to speculate on the mortgage situation next summer? I'm losing my mind with worry

[anotherklutz]

My fixed rate at 3.8% comes to an end next summer but I'm absolutely out of my mind with worry right now about whether I should cut my losses (e.g paying the exit fees) and grab a new deal now. I'm seeing deals at around 5 or 6% that I think I could easily get onto. However, I'm worried about wasting money by doing this (my partner and I are not high earners, ~40k joint, and don't have excessively large savings, ~8k all together) as the fees aren't cheap and a lot of deals have start up costs that inflate the cost of this jump even further. I'm also extremely anxious about rates going to 16% next summer like some articles have said (can't find sources right now but they compared it to the 80s) and literally having to sell up and move back with family. Either that or our home being worth like £10 after the economy completely becomes non existent and being in negative equity. I've calculated that the max we can possibly pay on the mortgage p/m is 1500 to actually be able to eat and pay other bills and am willing to go onto the SVR to 'weather the storm' for a bit if my deal expires and the UK is burning in hellfire at that point (i.e there are no deals or all deals are 2 years at 10% plus which would be silly to agree to).

Details for reference:
- 150k house value in 2018
- 95% LTV mortgage back then
- 132k approx will be left at the end of the deal (88% LTV)
- 3.8% fixed for 5y
- 577 p/m current payments but overpay by 100
- Exit charges are around 2k all said and done
- new deals I've seen cost about 1k to organise considering everything
- I could potentially pay the funds to drop down to 85% LTV but I don't think it'll help my case all that much and would mean eating into long term savings

So, does anyone care to speculate on what the UK might look like for someone like me next summer? Or am I insane waiting that long? Please be kind, I'm not rich nor all that savvy when it comes to the ins and outs of interest rates and what the BOE is even doing half the time. I'm just trying to survive this really and still have a place to live.

 

[nedlm10]

@anotherklutz I would ride it out in your position. It’s a risk either way but 5-6% now with £2-3k fees when next summer could be 3-4% no fees. Wait until it’s closer to your renewal.

 

[bellamas]

@nedlm10 They can lock something in now that will overlap their existing lender offering to stay on with them when they have 6 months left. Better doing it now and covering all bases

 

[freebird123]

@bellamas This is a great comment.

Also OP speak to a good mortgage advisor so you really understand what your options are.

If it looks like base rates are going down from next summer I’d be inclined to look at a tracker, but that’s obviously a bit speculative.

16% seems extremely unlikely unless Kwasi and Liz really go nuclear !

 

[marydenly]

@bellamas I spoke to my broker about this yesterday too, most lenders are apparently looking to squash rates if the BBR goes back down before the new fixed term actually starts

 

[anotherklutz]

@nedlm10 !thanks

 

[westernrose]

@nedlm10 Buddy if you think next summer will be 3-4% then you're in for a crude awakening.

The inflation situation is not going anywhere any time soon

With that said, there is no way rates are going to 16%. That would make 2008 look like a small market correction.

 

[galactic_wolf]

@anotherklutz I thought this video from PensionCraft made a decent stab at the question of How High Will Rates Go?

 

[anotherklutz]

@galactic_wolf !thanks for this

 

[cheshire12134]

@galactic_wolf Good video. Thanks

 

[faithmine]

@galactic_wolf Bad new but nice video thanks

 

[onefootinheavenoneinhell]

@anotherklutz No offence, but it sounds like you're losing your marbles. People make poor decisions when they panic.

You can generally secure a new mortgage up to six months before the current deal ends, so you could start looking early next year. How high do you think they're going to go up in those few months and why?

You need to stop listening to the media so much because they are very good at spreading fear. You've only got to look back to the early days of coronavirus and them causing shortages due to panic buying or when we had that issue last year where a couple of petrol stations ran out of fuel and they made it a national issue. They're doing it again now. The sky is not falling down.

 

[anotherklutz]

@onefootinheavenoneinhell None taken, I feel crazy right now - between my own concerns and those in my local area being unable to afford food and basic essentials, it's turning into the wilderness around here real fast and the media definitely isn't helping.

My deal won't allow me to go fee-free until 3 months before so it isn't ideal but can't really do a lot about that. I guess my fears come from seeing similar rates to what I'm on now in the summer to them basically almost doubling over the course of 1.5-2 months and horrific projections in the news everyday about how we'll essentially be all barbarians by next year because of just how crazy it'll get.

I'm really hoping you're right about the things in the news, the small hope that it's all being blown out of proportion has been the only thing stopping me from making rash decisions on this.

 

[latyneyez]

@anotherklutz

horrific projections in the news everyday about how we'll essentially be all barbarians by next year because of just how crazy it'll get

Where? Nowhere sane is saying anything close to that, at worst it's "high interest rates / energy crisis continues" etc. Not Mad Max. That's you extrapolating. Seems like you're choosing to read the more extreme projections, then spinning that into an even more extreme interpretation, then getting worked up over something that nobody's actually predicting.

The very fact that 5 year fixes exist at 5-6% means that those lenders think that's what the average interest rate will be over the next 5 years (very broadly speaking). If lenders thought rates were going to hit the roof they wouldn't be risking offering loans like that and making massive losses. I'm not saying those predictions are guaranteed to be right, but we can all be pretty sure that mortgage lenders, whose job it is to predict stuff like this, are likely to be more accurate than your worse case guesswork. You need to get a handle on your anxiety before you start rethinking your mortgage.

 

[atiniir]

@latyneyez

The very fact that 5 year fixes exist at 5-6% means that those lenders think that's what the average interest rate will be over the next 5 years (very broadly speaking).

In that case they're potentially predicting they win out - as rates could go down, therefore people fixing at 5 years pay out more? Sorry if I've misunderstood.

 

[barefoothannahb]

@atiniir Yep. Banks offering 5 year fixes at 5-6% means they think that they can make reasonable profit off rates of 5-6% over the 5 years. If interest rates shoot up like OP thinks they will, then the banks are clearly idiots, aren't they?

If anyone thinks these banks are idiots in how they're handling mortgages, then I'd love to hear how they are more qualified than them and then to hear the contrasting opinion.

 

[dobyzheee]

@barefoothannahb I’m not an expert on this by any means, but even if lenders believe rates will go much higher they will still be willing to offer fixed mortgages right now at 5%.

I believe it’s because they borrow the funds for the mortgage at (close to) the BoE base rate, currently 2.25% - but crucially they borrow the entire mortgage amount at the current BoE rate.

So as far as the lender is concerned they will effectively continue to make money on that particular mortgage (5% minus 2.25%) even if the base rate goes much higher because the money has already been borrowed at the lower BoE rate. (This is my understanding, correct me if I’m wrong.)

TLDR The fact that lenders are currently offering rates at 5% doesn’t mean they don’t think rates will go much higher.

That being said I think OP should wait rather than incur an early repayment charge. I think over the short-medium term the BoE will be reluctant to push rates to much higher levels precisely for the reason that OP is scared of. People have been so used to low rates since 2008 that if they went back to say levels in the 1990s it’s likely to cause many repossessions along with a deep and widespread recession. BoE are just trying to bring down inflation but without crashing the economy.

 

[freebird123]

@dobyzheee I’m not an expert on residential mortgages but I work in commercial real estate financing.

Right on idea but just to clarify banks can’t really borrow at BoE base rate. They can borrow overnight at a similar rate, but for borrowing 2-5 years it’s around 5% for banks, hence you’re seeing that in your mortgage rates. That’s indeed an average of where the market expects rates to go in the coming 2-5 years. There isn’t much difference between 2 and 5 years because we expect that it’ll go very high between now and end of 2023, before falling again. Actually for borrowing I look at, it’s cheaper to borrow for 5 years than it is for 2 years!

I’d be reluctant to say the BoE isn’t going to push rates as high as the market thinks, the BoE and central banks globally have been outpacing market expectations with their rate hikes all year and the BoE’s mandate is to tame inflation, not meddle with personal finances. Having said that, I don’t for a second believe any of the scare stories. I think in the short term BoE base rates will reach c. 5% so expect mortgage rates of 1-2% on top of that.

If I was remortgaging next year I’d probably take a tracker if it still looked like we’d be on a rate cutting cycle soon.

All my own personal views, not meant to be taken as advice!

 

[latyneyez]

@atiniir Yes, they'll factor in profit for themselves on top, balanced out by trying to offer competitive rates. That's often the argument in favour of a variable/tracker mortgage, it eliminates the "insurance" factor of a fix, so it can be cheaper, equally if rates do go up, you're then worse off than someone who managed to fix at a lower rate. It's all a bit of a gamble/depends on your risk tolerance, but the vast majority of people will end up somewhere in the middle, either slightly better or slightly worse off than they could have been.

And even if someone fixes at a rate that ends up being much higher than the variable one, OK they're technically worse off than they could have been, but they're not "losing" money in absolute terms - they locked in a price they (hopefully) could afford, it just wasn't in hindsight the best deal.

 

[gloveanlee]

@anotherklutz You might only be able to switch the mortgage fee free within 3 months of the end date, but you can often lock in a new offer several (6) months in advance too so probably not too long to wait before you can take action and avoid the ERC.