UK average mortgage rates set to RISE by £5000 PER YEAR by 2018 according to the government
There was one small line in the Faux-stere Chancellor’s Autumn statement that should give people some very serious pause for thought about a meaningful recovery in the UK. From page 19 of the Autumn statement:
Did you get that rather large bombshell dropped into the statement? For every every 1% that mortgage rates rise, it will add a whopping £1000 to homeowners mortgage repayments.
And with mortgage rates at historic lows of around 2.5%, and the Bank of England’s base rate at virtually zero, rates only have one way to go, and that is up – But don’t take our word for, here’s what the government expects interest rates (3 month LIBOR) to do over the next five years, from the same Autumn Statement:
So sometime in 2018 3 month LIBOR rates are expected to be around 3.1%. The last time 3 month LIBOR rates were around the 3.1% level was back at the start of 2008 – when the average variable rate mortgage in the UK was around 7.5%.
Assuming the government is correct with its 3 month LIBOR rate prediction (a massive assumption we know given their woeful track record at predicting anything), then we can expect to see mortgage rates around the 7-7.5% range in 2018 – given that the government themselves admit that “for every 1% rise in mortgage rates, it increases the average mortgage by around £1000”, then we’re looking at an increase in the mortgage rate of around 5% – this means that by 2018 the average mortgage costs in the UK will increase by around £5000 a year.
And what if the government is wrong and rates clime much, much faster than anyone is currently predicting, and they merely return to where they were just five short years ago sometime in 2015? Then you can kiss goodbye to all this recovery talk you’re hearing so much about at the moment.
There are around 11.2m households with mortgages in the UK according to the ONS – which means that in total, they will have to find a staggering £56bn, or 3.2% of 2018 nominal GDP, in just five short years time. And given that, as we pointed out last week, household are eating into the long-term savings at the fastest rate since the 1970s, just where in the world is this extra £56bn expected to come from? The money simply will not be there – so just how is the UK economy expected to grow in an environment like this? And just how many people will simply hand back the keys to their home and walk away? And just what does that do to home prices in the UK?
The government, in cahoots with their central-planning buddies at the BoE, have blown a massive housing bubble in the UK (in-fact, it’s actually just an extension of the housing bubble that began to ‘pop’ in 2008/9, but was crucially never permitted to properly flush out the froth), and is setting the unwitting homeowner up for an almighty fall in the not too distant future – and this, remember, is all using the government’s always rose-tinted forecasting ‘prowess’, should they be off with their timing of a return to higher mortgage rates, and it happens earlier then 2018, then expect the BoE to do what it does best – print-up some more freshly created currency and try and keep rates ‘lower for longer’, at the same time devaluing the purchasing power of your monthly wage-packet – either way, you’ll pay.
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