British pound hits record low against the dollar

But yes, ARMs are basically the entire UK market. We don't have long-term fixes like in the US. The longest fix we have here is 10 years and they're quite rare. Overwhelmingly borrowers go with 2, 3 or 5 year fixes. I believe the US is a huge outlier in that the majority of your mortgages since the GFC have been 30 year fixes.

Things are very bad right now, but I'm still exploring options. It's possible at this point that we might still get through this if we're extremely careful with money (as in beans and rice every day for the next two years) and rates don't go any higher. It also assumes I don't lose my job which is at risk because of the recession. I'd like to say it's 50/50, but realistically there's probably a 20-30% chance I'll be okay at this point which isn't ideal, but it's still a hand worth playing.

I would bet against the government stepping in because here in the UK you have renters who hate homeowners, and boomers who typically own there homes outright and therefore tend to blame people struggling with mortgages because in their day rates were 10% (obviously this is never adjusted for affordability, but still). Either way there is close to zero political incentive to help millennials who brough homes in the last two years. Nor is there any precedent to helping home owners in my position. Our new PM is also a bit of a Thatcherite and may actually be trying to raise rates with her economic policies which I think is part of the recent the market is reacting as it is.

Honestly I doubt there's really a way out if things go against me any more. I'll have to declare bankruptcy and take it from there I suppose. I'm trying to stay strong, but I don't deal with stuff like this well. I don't even know if I want to deal with it. There's no reward at the end, it's just more suffering.

I don't mean for that to seem harsh, but it's just wrong to expect government help all the time. Especially for a readership on Hacker News, we should be pitching financial literacy.

The issue with fixes is that you pay a premium for fixing longer term and you also risk interest rates being lower going forward than you fixed for. A lot of the fixes also have early repayment charges and the longer-term fixes can have very large early repayment charges (5%+). This introduces a new risk because if you need to sell your house for some reason during that fixed period you would have to pay a large fee just to exit the deal which isn't great if you've only just brought your house and don't have much equity to fall back on.

So given this I was fine with taking something closer to a market price on the assumption that rates wouldn't sky rocket over the course of the next couple of years. That why I'd have the ability to get out of my mortgage if I ever needed to.

> Neither is 'stupid' - they just have different volatility and risk.

I agree. What upsets me a little is that I don't think I was making a reckless move. We've been thinking about moving away from the city for some time so a longer-term fix was quite risky for us, although if you're sure you're going to stay in your house for 10+ years that's obviously the way to go if you want to reduce the risk of rate rises.

I believe in the US there is no early repayment charge on mortgage in which case it probably always makes most sense to take a longer-term fix.

Also if had brought my house several decades ago I'm sure I wouldn't be in this position right now. It's lose, lose for my generation. You either rent at stupid prices and own nothing, or you take a gamble and buy a house. I understand why people blame me for this, I just don't know what more I could have done. I didn't buy a house at the limits of my affordability unlike some do (and are basically forced to do). I'm also quite well read on financial markets so for me to make this mistake I think probably says something about how easy such a mistake was to make.

Thanks man. At the end of the day a mortgage is always a risk and you can only be so conservative with your expectations. People have been predicting rates will move up for years, but I'm not sure anyone predicted rates would move up 6% in a year and a half even if in theory it was possible.

> What does the 500,000 figure represent? There will be many people whose fixed-term mortgage rates expire in a now much higher-rate environment, including those on longer-term fixes negotiated before the pandemic.

There's a lot of people who will need to fix at a higher rate in the coming years, but most I suspect are at little risk. If you owned your home for 10 years you've already paid down a lot of the mortgage and you were probably used to modestly higher rates anyway.

Here's a chart: https://pbs.twimg.com/media/FdlyDZhWAAI95pl?format=jpg&name=...

Where the risk would be is new buyers with a high percentage of debt / equity who brought over the last couple of years who now need to move to a much higher rate. I believe that number is around 500,000, but I've not seen an exact figure for that. It's somewhere around that though from the numbers I've seen.

Higher mortgage rates generally obviously aren't great for anyone though. Even if you can afford it your mortgage payments going up it will still mean you have less to spend elsewhere.

Well that's the problem. What do you do? Rent and wait for a crash that might never happen or just buy and hope it works out? Both are a huge risk. Those who waited in recent years now have to buy at much much higher prices.

> Wouldn’t that be even worse for your younger and future family members?

I want rates to rise and for housing affordability to come down. I even planned for that. What I didn't expect was for rates to rise 6% in a year or for there to potentially be a housing crash so soon after I brought. My house not decreasing in value with a slow increase in rates would have been fine.

> I don’t think you’re stupid, but this does seem like shortsighted thinking.

Yeah, perhaps. I just wish everyone who knew this was going to happen was around a couple of years ago to talk me out of it. Honestly it seemed like everyone was of the opinion that buying a house was generally a good financial decision until a few months ago. Now everyone is telling I made a stupid decision and should have rented. I don't know what to think anymore.

I did try to calculate affordability under reasonable circumstances. Most people two years ago would have recommended checking that you could afford interest rates to normalise to 5%. I could (with a bit of a buffer) and if they were to go higher over say 5 years that would have been fine because I would have time to pay down my mortgage and hopefully would be making more by then. What I didn't account for was the huge increase in energy bills, cost of living plus interest rates going above 6% in a year. I know I should of and apparently people did, but I'm still not clear how I was meant to predict the largest affordability crisis in UK history.

Not making excuses though, I feel upset and annoyed at the timing. But ultimately I just feel like a failure for letting everyone who relies on me down, and that's my doing.

Hope this doesn't come off as me making excuses, I'm just trying to explain my perspective. I wasn't trying to gamble on house prices going up or knowingly making a risky bet as a lot of people have been suggesting to me recently. I was just trying to buy a house for my family.

Also, none of these stats ever adjust for affordability. People like to cite rates in the 70s but forget that people borrowed much less on their homes back then so the impact of rate moves wasn't so extreme. When adjusted for affordability this is without a doubt the largest move ever. You have to consider that first time buyers today frequently take out mortgages with just a 5% deposit, and often use all of their savings to do so. They have no buffer.

The sad thing about all of this is that I'm probably in a relatively good position compared to most buyers given I have some savings and didn't take out a 95% debt/equity mortgage.

This rise in rent stops as soon as unemployment starts increasing, which in the US it already has.

There's really no good options. The right answer would have been to try to find a 10 year fix when I took out the mortgage but as I've explained in another comment they're very unfavourable for many reasons in the UK. You basically pay a premium on current market expectations for the fix and have early repayment fees were you to want to sell your home.

At the same time it was made much easier (at lower interest rates) for southern European countries to borrow money from northern European countries and other markets, as creditors would feel more secure that they'd get their money back. Creditors would assume the northern European countries would bail-out southern European countries in case of problems.

And that caused southern European countries to lend more which might benefit a country like Germany again. These countries could lend more easily to buy luxury cars, for example.

Lira pesante Due to the lira's low value after the war economic calculations and price displays became unwieldy because of the large number of zeroes. As early as the 1950s suggestions were made to redenominate the lira but no serious efforts were made at that time. In the 1970s a plan known as lira pesante [it] (English: hard lira) or lira nuova (new lira) was proposed. The lira pesante would have redenominated the currency at 1,000:1, removing 3 zeroes. However the project went dormant for several years before being revived in 1984. Ongoing heavy inflation saw the lira pesante pushed back until it was permanently abandoned in 1991 because of plans for a single European currency.

They had large pension and state-payroll obligations, and they couldn't cut that spending and stay in power. Greece tried to cut it's spending, and the government was ejected. The new socialist government was then destroyed by German bankers and politicians.

Best explanation I ever heard for that phenomenon

Not lower? Or am I misreading it?

Basically, nobody thinks that Kwarteng's extreme tax changes make any sense. Not even in his own party, apart from a tiny gang of nutters. He's planning an enormous increase in government debt, so he can give money to people who already have too much. His tax-cut plans are inflationary.

Meanwhile, the Bank Of England has a mandate to keep inflation within a window that it's already moved out of. So the Bank is required to increase interest rates. Kwarteng and the Bank are therefore pushing in opposite directions; Kwarteng's moves will tend to heat the economy up, interest rate rises will try to cool it down. I wouldn't be surprised if rates rise to 15%.

So the rich people who benefit from these tax cuts will invest their loot overseas (or in property); and overseas investors will steer clear, until we've got rid of these fanatics.

Truss/Kwarteng have no mandate for this nonsense; the only mandate they have is to "Get Brexit Done", and it's done. So the government is now skiing off-piste. It's disgraceful that this gang of crazies have managed to take over the government on the strength of the votes of about 80,000 Tory party members, without ever presenting a manifesto to the nation.

If it keeps going for weeks at this rate, then it is a big deal, of course.

Taleb loves making fun of economists. One of his jokes:

Trader comes to manager and told him he lost 10 mil because he bought treasuries since the bank economist said they would go up. Manager fires him. Trader asks why, is he required to always win? Manager says no, I didn't fire you because you lost money, I fired you because you listened to the bank economist.

Judged by peers he's still quite valued eg by this ranking: https://ideas.repec.org/top/top.person.all.html (rank 36/3255) - but of course in academic research you don't necessarily aim to be right as often as possible, it's a search and exploration of ideas and testing what works.

But you can just feel his ego through his tweets "I'm supposed to know something about currency crises — I did invent the academic field!"

(There was some stated nonsense about reducing tax bills increasing growth, but trickle-down economics has never been proven to work and they weren't interested in that)

My guess is scorched earth. BoJo is such a disaster that his own party had to remove him - and even that turned out to be a struggle (getting rid of leaders with challenged hair seems to have been a struggle lately on both sides of the pond). He became that unpopular.

The crew that have replaced him have no chance of winning the next General Election; Truss has even said that she knows she's unpopular, and doesn't care. So by running up the debts, they set a minefield for the next Labour government, which will have no alternative but more austerity. So I guess the Tories are planning to win an election in 7 years time.

I've heard rumours about Kwarteng being involved with Hedge Funds that have now made a fortune by shorting the pound and to be honest, that makes more sense than any other explanation.

No government with morals could do the sort of borrowing + tax cuts that the Tories are doing. That means down the line a moral government has to be austere and have higher taxes, and so the people will just vote in the Tories again. Only complete societal collapse will stop that cycle ...

Ergo having a climate change denier in charge of business and energy is a good thing! /s

Corruption.

In this specific case it's not really a "strong dollar/energy crisis" story – the proximate cause is a massive overnight shift in UK government fiscal policy to "let's cut taxes and not spending, and it will all work out" that's obviously spooked everyone.

But I agree with the above sentiment anyway, same could be said for the Soviet Union and in many ways, Russia today.

The USD is strong, but that's only half the story here. Just look at EUR vs GBP since Brexit: down 20%. We're doing 20% worse than Europe, an economy with the same issues around energy as ours, plus no real decisive government and which just finished dealing with a debt crisis and a migrant crisis.

Blame loss of manufacturing on globalization and the rise on China more than anything else

My understanding is that they never intended to leave the common market but to gain a trade deal that would leave market access substantially the same. However, the EU wouldn’t let them keep access in the divorce if for no reason other than as a cautionary tale for other member states. So, it turned ugly and there they are.

Big props to Jeff and Emil for their generous freely available teachings. I further recommend their paid subscription too. It's well worth it.

These times are easy to see coming if you had the right monetary lens on.

Most likely all of it. No decision is made in a vacuum, and all of them are compounding factor. In retrospect, the timing for Brexit was pretty bad (on top of it being a stupid idea badly implemented).

> As far as I know, not a single doomsaying Brexit prediction has come to pass.

Funny thing is, I have a hard time thinking of a prediction that did not materialise, from the fall in both imports and exports, the divergence in standards to ensure that trade will never be smooth again, the increase in red tape and bureaucracy, the government openly discussing tearing down the Good Friday agreement, the relaxing of environment protections, to the lorries queuing in Dover.

https://responsiblestatecraft.org/2022/09/02/diplomacy-watch...

Apparently reported on in an article on Foreign Affairs:

https://www.foreignaffairs.com/russian-federation/world-puti...

In Ukraine's Pravda, which is not the same as the former Soviet Pravda, it was reported that in April -- after Bucha, and everything else -- Johnson warned Zelensky that Putin could not be negotiated with.

[1] https://www.pravda.com.ua/eng/news/2022/05/5/7344206/

But, seems a lot of western leadership is blind.

with zero evidence that their tax cuts will have any such consequences.

Capitalism, flawed as it is, is the one economic system that helped move billions people out of poverty.