Nationwide 5 year fixed rate jumps 0.75% overnight from 3.69% to 4.44%

Just as luck would have it, my hope of a cut price mortgage deal have taken a set back with the headline rate jumping to 4.44% from 3.69% overnight. I blame Krashy Kwarteng and his doomed economic plan.


And I’m consistent – I wrote about it here and moaned about it here.

Higher Borrowing Costs for GFF


That 0.75% increase, to put in perspective. My modest £125,000 new mortgage will cost me £463 a month in interest up from £384 or almost £80 a month or £950 a year. My current deal is 1.79% and a year ago I thought that that was too high and I could have done better (and should have). Those days of cheap borrowing are gone.

Monthly repayments are going to be around £780 a month – which is manageable but if my mortgage was twice or three times the size, I’d be worried about where the extra cash flow is going to come from.

Krashy – a politician and pirate

I have a LTV (Loan to Value) of less than 50% – so I’m a decent bet I think, riskwise. An LTV of 90% gets you 4.84%. It is a bit surprising that the risk premium of going from <50% to 90% LTV isn’t higher – don’t you think?

Kwazi – an Octonaut and pirate

Still Some Work To Do

My mortgage runs out at the end of the year. I was planning to arrange the new mortgage this weekend on the 1st of October. I can still do that. The extra cost isn’t a huge problem, other than it being higher figures in my spreadsheet – I’ve not much control over the situation, so I’m not going to panic about it.

But maybe the stealthier course is to wait for this panic to subside. The BOE has already said that it’ll buy long dated gilts indefinitely to hold yields down (funny how they have the money for when the economy needs it but not when people need it?)

So maybe if I McLeod it and “hold fast” I’ll get a better deal before Christmas?

Alternatively, I can go onto the SVR (which is about 5.04% at the moment but could increase by a few percent in the next few weeks (or hours!)

It’s hard to know what’s the best option. I suspect that I’ll go for fixing and early fix. Better to panic early than to panic late?

Additional Borrowing (to invest)?

I had considered borrowing extra to invest when remortgaging. This was on the assumption that even at say 3.69%, I could out perform that. Investing in an electric car or energy saving at home could produce a return better than that. Or there’s just the old fashioned investing in stocks and shares that I could do. But who knows if getting extra debt now is a good idea?

I reckon that I could get an extra £85,000 by increasing our borrowing to an LTV of 70% and still get the best rate. Now, whether the Nationwide want to lend extra to me is another question.

The big risk is that the extra £85,000 costs me £4,000 a year in extra interest and my investments don’t grow to cover that cost.

I don’t want to make myself poorer in 5 years time and who knows if the rule that stocks always go up will apply in 2028?

House Prices are Fantasy, Debt is Real

A problem for everyone is that at a cost of borrowing of 4.44%, a house that costs £500,000 (which might be a mansion in some parts of the country or a dilapidated hovel in London) costs or saves you £1,850 a month or over £22,000 a year in interest. At 6% it’s £2,500 a month or £30,000.

Given how everyone in big houses is suddenly unable to afford their heating bills of low single digit thousand pounds a year – this rocketing of interest rates is going to hurt a lot of people.

We became used to being able to borrow cheaply and took it for granted. All this cheap money made us spend more, save less and certainly not pay off the mortgage. It’s now coming back to bite us.

Paying £2k a month in interest might sound bad but if house prices start dropping at the same pace, there’ll be mad angry panic.

Don’t forget energy bills rising

The Future for Money, Borrowing, Debt and House Prices

I would be shitting my pants if I was a BTL landlord right now, someone who came late to the game and is over leveraged in the hope of making a killing. If house prices are partially dictated by how much it takes to borrow at 2% and rent out to make a profit – now that common rates are twice that and the prospect of rents increasing in a cost of living crisis is laughable, it puts a real strain on house prices.

So, I would expect that in many places the value of houses will go down. Particularly if it is a large, poorly insulation, costly to run, far from amenities & car dependent luxury house. The fantasy prices of modest rural properties in the Cotswolds or wherever must be under severe pressure. If prices go back to where they were in 2020 (pre-pandemic), it would be seen as a massive correction but it’s entirely foreseeable.

Easy Way to Make More Money Now

If you need some extra cash, you can sponsor a Ukrainian family in your home. An easy £350 a month! There are lots out there and they need your help.

Good luck, GFF.

11 Comments

  1. Really good write-up. As a long-term reader I know you’ll be fine but you are absolutely correct in that it’s worrying times for many.
    Out of interest (ha) I did wonder if you saw this coming and could have broken your fix and moved quicker? You seem to be absolutely on the ball with all of this. I paid an early termination fee last summer (£1,500) I believe and locked in a 5-year fixed interest-only mortgage at 1.19% as I figured it wouldn’t ever get any better and with all the money printing something had to give.
    I think you’d be well positioned to lock in as soon as possible to make sure you get an ‘ok’ deal as it’s 100% going to get better before worse.
    Thanks for all your write ups. I really enjoy them.
    Ryan

    Liked by 1 person

    1. Well done on getting a fix for 1.19% – that’s an over 4% saving on what I’m looking at today!

      I’m in the process of applying for a mortgage with Lloyds but it’s complicated and I’m sure that they are busy but at 3.79%

      Like

  2. Firstly, I have been reading your blog for several years and find most of your articles to be both interesting and thought provoking. Thank you for all your hard work.

    However I think that your approach to your mortgage is strange.

    I think that it would be wise to consider why historically you have taken very short term mortgage deals instead of longer term ones. Anyone who remortgaged 12 to 18 months ago that did not take out a 5 year or longer fixed rate was taking a big gamble on the direction of interest rates for very little benefit (i.e. difference in rates between 2 and 5 years was not that much). So why take the gamble?

    My approach to mortgage rates has been as follows. In 2007 I took out a lifetime tracker at 0.19% above base rate. I took this rate against mortgage brokers advice who recommended a fixed rate because I could see that this was loss leader to the bank and there was no way they could make money on it. Long term it would offer excellent value for money. However in the short term I was a bit worried when interest rates moved up 0.5% but fortunately we all know what happened next. Rates when down to nearly zero.

    In 2016, I needed to remortgage and take on a much larger loan. I very reluctantly decided to give up my tracker and take a 7 year fixed rate of 1.99%. This rate looked very attractive to me both compared with shorter term rates at the time and even if rates were to reduce further how can paying 1.99% ever be considered expensive.

    Now of course, I face the requirement to remortgage in a year’s time when it is almost certain that interest rates will be far higher. However I will have had 16 years of very low interest rates so I don’t think I can really grumble if I have to pay high rates for the next few years. I did consider coming out of my fix but unfortunately I have a very high early redemption charge and it would not be cost effective.

    You may find this article by the excellent Finumus explains the fallacy of short term fixed rate mortgages in the UK and the risks they present. https://www.finumus.com/blog/beds-are-burning

    I suppose the point I am trying to make (not very well) is that a mortgage is a long term liability and it is more important to keep the long term cost of a mortgage low rather than worrying about the cost over a couple of years.

    Like

    1. Thanks Peter,

      My current mortgage was a 5 year fix. I think that the UK way of having mostly 2 year deals only works when rates are going down or are stable.
      If they shoot up, especially since house prices to incomes are so high, it’s a recipe for pure disaster.
      The Nationwide 5 year fix is now 5.14% today. That’s an extra £4,200 in interest on my mortgage a year or £350 a month.
      That makes your new heating bills seem reasonable.

      My objective has always been to pay as little in interest as possible.
      But without particularly over paying the mortgage since investment returns best savings.

      I enjoy finumus and I’ve read that blog
      At the end of the day, for many people their mortgage/house is their biggest is their biggest (or only) investment.
      It’s not like that for me and I suspect you and many other readers.
      Higher interest rates are an inconvenience but we live in interesting times.

      Like

    1. I was set dressing – sat at my desk for 3 hours along with a bunch of bewildered strangers/colleagues.
      Didn’t get invited into the meeting room and only shook hands with the company man and spoke for less time than it took for you to read this response.
      I’ve also not done any work for the client yet

      Total waste if my time – although it did get me out of the house and I got laid 3 hours for the distraction and I appreciated the variety in my work day – but I have not been back since and I’m not in a hurry.

      Like

  3. I got an extension to the term of my mortgage in the days before the “mortgage meltdown”. It’s an interest only mortgage at base rate + 1.49% – the mortgage is fully offset ( effectively paid off ) so I’m less (directly) troubled by interest rate rises.

    I extended it in order to have flexibility to draw down the funds in case of “opportunities”. It took some negotiation as the mortgage provider were keen for me to just close the mortgage.

    Also they curiously seem to have loaned me 20k more than the signed agreement. I’m aware that bank errors in your favour rarely end up with free cash but it’ll be a fun game to play.

    Increases in interest rates has also resurrected stoozing as potentially viable.

    Liked by 1 person

      1. After securing my extended term mortgage I set about burning my credit rating by acquiring several 0% and 0 fee cards. Some money transfers followed by same day balance transfers from the 0% cards means I should make about 2k per annum from simply moving other people’s money around.

        Liked by 1 person

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