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Savings:Mortgage (Read 8782 times)

moose

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#50 Re: Savings:Mortgage
September 26, 2022, 08:46:29 pm
Not sure how relevant this is to the above but here's an interesting twitter thread on how financial markets are expecting UK interest rate to hit 5.75-6% by next Spring.  It contends that this would be worse than the far higher interest rates of the late 70s-early 80s, as in those days house prices / mortgage repayments were a much lower proportion of wages - i.e. affordability versus the pure numerical interest rate (14.2% in 1980 equivalent in affordability to 3% now).

https://twitter.com/EdConwaySky/status/1574315522048626688

James Malloch

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#51 Re: Savings:Mortgage
September 27, 2022, 09:36:40 am
It makes me so glad we went for a 5 year fix (2 year would be due soon) and also a house that we could live in longer term if needed (would prefer to move somewhere with a garden and garage but I guess these are nice to haves…).

Hope things calm down soon, and the government back down on this crazy package they are putting together!

petejh

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#52 Re: Savings:Mortgage
October 02, 2022, 03:02:31 pm
The chart below should be helpful for visualising where mortgage rates may be heading and for what duration. In the top left quadrant you have a comparison of central bank rate hike forecasts as of last Friday (solid lines) versus same forecasts 3 months prior (dotted lines).

This should be helpful for someone trying to decide on duration between a 2 / 5 / 7 / 10 year or longer fix. Obviously forecasts aren't reality and forecasts could change as circumstances change.

You can see that the updated forecast has UK bank rates to rise by another 3 - 3.5% (goes off top of box) within the next 12 months, and to remain elevated around 3% higher than today for 24 months. Then a slow decline, starting around 2 years from now, to a level around 1.5% above the current rate 5 years from now. Note these changes are in addition to current central bank rates (2.25% today in the UK). In other words the forecast is for the UK bank rate to be around 3.75% 5 years from now. Mortgage rates obviously charge a premium in addition to bank rate. 

The EU looks high for longer but they're starting from a lower rate (of 1.25% today). So the net effect after 5 years is that both UK and EU end up at around the same interest rate (of 3.5 - 3.75%). UK drops more and sooner but from a higher base.

Something that could alter the forecast upwards further would be further and deeper global commodity supply shocks than we already have but not at a rate of change that shocked the system beyond coping. Something that could alter the forecast downwards would be a massive rapid shock to the western financial system that resulted in QE stimulus in the form of bond-buying by the western central banks to prevent total meltdown of the economy.
Note the EU's 'TPI tool' as first defence against 'disorderly market dynamics. And the UK's recent bond-buying action...


« Last Edit: October 02, 2022, 03:25:55 pm by petejh »

 

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