"A question for our English brethern" Topic

I've noticed in several UK publications and blogs that there seems to be a lot of homeowners who are saying that with increasing interest rates they can no longer afford their house payments.
This caused me to wonder about how home mortgages are structured in the UK. Are they all adjustabale/variabler rate loans, or is there some other issue that would force a change in the amount of the payments?

There are several types of mortgage available. You can get fixed interest repayment mortgages and variable interest repayment mortgages and interest only loans where you have to find some other source of capital to repay the loan itself.
The problem is that we have had a whole generation of people grow up with incredibly cheap interest rates who have borrowed right at the maximum they can afford. This has caused rampant inflation in house prices and then mass panic as the rates have risen causing so called "hikes" in repayments. Nobody ever really believed the warnings of my age group ("boomer") that rates will eventually rise.
The driving force behind this is the tory party obsession with driving down inflation by restricting disposable money.the other method by increasing the supply of goods and services would require membership of a globally significant trade bloc like the EU. Oops.

+1 on all counts RittervonBek.

The current crisis is a result of many being on short term (2 to 5 years) fixed rate mortgages at the ludicrously low rates that have existed since the global crash in 2008. These rates have, as RittervonBek explains, helped to fuel house house price inflation at an even faster rate than before .
As these fixed rates come up for renewal, many find themselves going from 1 or 2% to 6%. Given that the average house price in UK is approaching £265,000.00 GBP, and may be double or even triple that in some locations, a 4% bump in interest payments overnight is going to cripple the finances of many, particularly when domestic fuel, petrol and, most of all, food, have shown dramatic increases in price over the last two years.

In addition, many mortgages were sold on an interest-only basis, as RittervonBek said, with another arrangement made to pay off the capital. These are often some form of investment portfolio od shares based saving scheme. The low interest rates have often meant that these investments have underperformed significantly and people no longer have the cash to pay of the balance of the loan if approaching the end of the term.

Same here in Australia; people fixed at ridiculously low rates and now face over double the repayments as the good times end. They are blaming the reserve bank for rate rises. I think the consumers and the mortgage providers are equally at fault but long periods of low rates caused complacency.
We now also have the problem that a lot of building companies are going under because people can't afford or can't repay loans and so there is lessening demand. However the rental market is now overpriced as there is increased demand and no rental stock.
It's an unpleasant situation and I would hate to be starting out in this market.

Some of this sounds very familiar. Wasn't anyone paying attention to our 2007 debacle?

Ritter, the "globally significant trade bloc" solution is sadly not a panacea. Come to the American midwest, and I can take you on a tour of shut-down factories. When governments sign 7,000 page "free trade" agreements, often the guy who only owns one factory can't afford enough friends in the capital. Still a few bugs in the system,

Very briefly, unlike the US, mortgage interest terms in the UK are either variable or fixed for relatively short periods. So base rate increases very rapidly feed into housing costs.

Quite how raising interest rates is a solution to cost push inflation due to supply side shocks is beyond me, but I guess the BoE has to virtue signal to 'the markets'.

As noted in an earlier reply, losing half million workers due to Brexit while erecting barriers against our biggest trading partners probably hasn't helped our supply side woes.

Anyway, basically we are stuffed. A return to the good old days of 1970s style Stagflation, and as ever, it is the poorest who will suffer most. Meanwhile the champagne corks are popping at the bank and oil company HQs.

My first home loan was at 7 % and it could have gone as high as 16 % . I looked carefully at 16 % and decided I could just barely survive that. As things turned out interest declined so happy ending except for the fact that the house did not increase in value for 8 years. Then it doubled in 2 years and I sold out. Anyone up for a game about hunting down realtors and loan officers'? :)

16 years ago I took out a business loan at 8% fixed (base rate plus 3% I think it was) for the first 5 years because that was the interest rate back then and neither my bank manager nor I could see the rate ever dropping back below that level. So when rates dropped that was a bonus, which a lot of house owners with variable rate mortgages also benefitted from. I suspect many didn't use their brains and save the amount that their mortgages had dropped by, and chose to spend it instead treating themselves. Saving seems to have gone out of fashion for anyone below pension age these days.

Martin, do I understand that correctly? You CAN'T, in the UK, get a 20 or 30 year fixed-rate mortgage? If so, my apologies. I thought they were doing what's common here--grabbing something good in the short term, and being stunned when the long term arrived.

I remember stagflation. My first mortgage was 10%.

Volleyfire, when the rates dropped here, I refinanced my fixed-rate without cashing out any of the equity, which surprised pretty much everyone involved in the system, and started chucking extra money at the principal. The next year or two I kept getting postcards offering me houses at 0% down. Then the bottom fell out. I had colleagues who did all the trendy things and were "underwater" in the mid-five figures.

I'm not financially clever, but sometimes being paranoid is sufficient.

Robert – the longest fixed rate I've seen is 5 years. There may be longer ones out there but I don't recall seeing any.

Fortunately we paid off our mortgage a few years ago and thanks to unbelievable property inflation in London now own a small house that is worth more than a mansion in many other parts of the country!

Good point about being paranoid. Some people just can't seem to visualise any other situation than the current one…

"Some people just can't seem to visualise any other situation than the current one."

It's a disease of the young, Cerdic. They've only experienced one state of affairs, and either they haven't studied history, or they've been told it's "progressive" toward some end of other, so the Bad Old Days of [fill in the blank] will never come again. I'm more like Lazarus Long. "It had been six weeks since their last trouble with lopers, which as far as Lazarus was concerned, meant they were six weeks closer to their next trouble with lopers."

Wow! It sounds like the same greed and profiteering craziness we had in the US. I lucked out and bought at the bottom of the market 27 years ago and sold at the top 2 years ago in California. Moved to TN and got twice the house, pool, and 1.5 acres for half the price of my house in CA, banked a lot left over, and paid cash for a Porsche Cayman S.

We bought our house in CA on payments that one of us could make on our income rather than a larger place that would take two incomes. That's the best decision we ever made.

The house in TN is almost paid for (we financed part of it) and no 10% state income tax. My wife and I work from home so our income was not impacted. CA wages in TN. Financially we've never been doing better. My advice, leave California while you still can!

Wolfhag

Interesting how many of us assume financial products, like mortgages, are handled identically the world over. I was shocked when a relative bought a home in Canada and he told me mortgages are structured very similarly to those described here as available in Britain. A 15, 20 or 30 year fixed rate commonly found in the US was not available.

"Martin, do I understand that correctly? You CAN'T, in the UK, get a 20 or 30 year fixed-rate mortgage?"

That is correct, no such thing as a 20 year fixed rate mortgage here. Banks will happily lend people a 40(!) year variable rate mortgage though. Another great way to stoke asset prices even higher.

I blame all that financial deregulation in the 1980s for this insanity. When I got my first mortgage they were still rationed, and the banking reserve asset ratio was 12.5%

It was noted here that the areas still requiring the traditional 20% down never had the spike in housing prices or the subsequent collapse. Mind you, none of the politicians who later blamed deregulation were calling for regulation during the boom times.

"none of the politicians who later blamed deregulation were calling for regulation during the boom times."

Those GDP figures won't inflate themselves:)

Anyway, hopefully inflation is on the way down here now, so rates will fall a bit at some point.

There's a number of problems.

One is the deregulation brought in making buy to let easier. It means if you can afford 1/3 of the price, you can get a buy to let mortgage for the other 2/3rds. These are interest only, and when it becomes due you can just sell the property to pay it off. As the price will have risen, you can pay the principle off, and pocket the profit. While you had the mortgage the rent you charged covered this, plus a bit for you.

In my previous flat the Internet tells me it was sold for £150.00 GBPk in 2016. In 2019 I took it on at £750.00 GBP pcm. When I left earlier this year it was £900.00 GBPpcm. Landlord put it up for rent at £1,100.00 GBP

Interest for him will be about £7,500.00 GBP at current rates (lower if he fixed last year) income from me £10,800.00 GBP, at new charge £12,100.00 GBP He doesn't do anything for that money.

Also in the 80s the Tories sold council housing off (publicly owned housing) for a fraction of the actual market value. Now those people are dying, their children are inheriting, and renting them out. Something like 1/3 of this housing that was sold cheap is now being privately rented out.

Central to the UK's housing problem is the fact that the population has increased from about 56 million when I was a kid to at least 68 million today.

Nowhere near enough new housing has been built to keep up with this increase, and that has been true for decades.

Partly this is because Britain is a small, densely populated island and vast tracts of land for building on are hard to find. Partly it's because people don't want their local countryside built over and object to large new housing schemes. And partly it's because the new-build housing sector is dominated by half-a-dozen massive construction companies who like to protect their profit margins by restricting supply…