Chamath @ 00:30:23Wrong
economy
Beginning with the reset of roughly 40% of UK mortgage balances that are interest‑only adjustable‑rate loans to around a 4% rate in January 2023, UK households’ mortgage payments will rise by a factor of roughly 3–4, causing significant financial distress and leaving the UK economy in a severely strained or "upside down" condition in 2023.
In the UK, 40% of all mortgage dollars are interest only arms. That will reset in January to around 4% 40%. Can you imagine how upside down the UK economy is going to be, when people have to spend three and four times more to keep their homes?View on YouTube
Explanation
The prediction did not come true on either its mechanics or its macro outcome.
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Mortgage structure and size of the problem
- In 2022 there were about 924,000 outstanding interest‑only homeowner mortgages in the UK, versus roughly 8.5 million residential mortgages overall – on the order of ~10–11%, not 40% of the market. (credit-connect.co.uk)
- By Q1 2023, around 87% of the value of outstanding UK residential mortgages was on fixed rates, not adjustable‑rate interest‑only loans, directly contradicting the idea that “40% of all mortgage dollars are interest‑only ARMs.” (bankofengland.co.uk)
- Trade‑body and FCA data show interest‑only has been a shrinking, niche product (about 3–4.5% of new regulated mortgages in recent years), not a dominant share of the book. (credit-connect.co.uk)
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Scale and timing of payment shocks
- The Office for National Statistics and Bank of England both describe the impact of rising rates as spread out over several years, with roughly 1.4 million fixed‑rate deals up for renewal in 2023 and many more through 2024–26, not a single “January 2023” reset event. (ons.gov.uk)
- Bank of England analysis indicates that for a typical mortgagor rolling off a fixed deal in 2023, monthly payments were expected to rise by around £220 per month (roughly a 35–40% increase), and later work puts average increases closer to 20–40% depending on cohort — substantial, but far from the 3–4× jump implied in the quote. (bankofengland.co.uk)
- Resolution Foundation and other contemporaneous research framed this as a severe squeeze (e.g., ~£3,000 per year higher costs for millions of households, and a double‑digit hit to real incomes for typical mortgagors), but again not a trebling or quadrupling of mortgage payments for the bulk of borrowers. (theguardian.com)
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Macroeconomic outcome – was the UK “upside down”?
- The UK did experience a cost‑of‑living crisis and a shallow recession in the second half of 2023, with GDP falling modestly in Q3–Q4 2023 then recovering, but by later revisions the economy in late 2023 was about 2.2% larger than its pre‑pandemic peak, and 2023 as a whole showed slight positive growth (~0.4%). This is weak performance, not an economic collapse. (wsj.com)
- Unemployment in 2023 hovered around 4%, close to historic lows, indicating a still‑functioning labour market rather than a systemic breakdown. (ycharts.com)
- Mortgage arrears did rise to a seven‑year high by Q4 2023, but were about 1.23% of loan balances—well below the 3.6% peak seen after the 2008 crisis—leading regulators to describe households as stressed but broadly resilient, not en masse unable to “keep their homes.” (ft.com)
Overall, the core premises (40% of mortgage balances being interest‑only ARMs all resetting in January 2023) are factually incorrect, the predicted magnitude of payment increases (3–4×) is far above what actually happened on average, and while the UK economy in 2023 was weak and under strain, it did not become "upside down" in the sense of a widespread mortgage‑driven collapse. Hence the prediction is wrong.