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OK so the base rate is low and people are taking advantage of it. But are banks being responsible in making sure they can continue to repay if the rates rise?
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86I think that is a very good question. I really don't think they are and more importantly I don't think borrowers are.
If you were to obtain a mortgage of say £100,000 today at a fantastic rate of 3.5% you would be paying approximately £290 per month in interest. When rates go up and I mean when. You could be paying alot more.
If rates go as high as 7% and I think that is a conservative estimate then you could be paying 9% interest and that would be approximately £750 per month just in interest. How many of us could afford an extra £460 per month. Not many.
Even with quite high rates for life and long term fixes I think they are a good bet.
Posted on 18 November 2009 |
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878It is a difficult one to answer. However, the banks have lowered the multiples of salary that they are prepared to lend on.
How high an interest rate they have allowed for is anyone's guess. The problem here is that when interest rates go up, inflation will have risen, so there will be wage inflation also. That compensates for the increased interest rate to some extent. However, salaries will lag behind inflation and interest rate rises.
Mike
Posted on 18 November 2009 | Love 0 loves
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216In my case ... yes ... it was vital that I know I can cope with silly interest rates on the amount I borrow ... any other choice is very risky.
The banks will keep lending the money though regardless.
Posted on 20 November 2009 | Love 0 loves
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0I am coming to an end of my fixed rate in December, that will be a saving of some £660 per month
My plan is to let it fall onto the SVR of my current lender, Chelternham & Gloucester and pay the minimum each month. As rates as so low it seems a shame to miss out on lower payments
At the same time however the balance between what I was paying and what I am paying will go into a high interest account, hopefully to help out a bit should payments rise or the worse happen, unemployment!!
From the experts on here I would love to know if this is worth it for now . .
Posted on 20 November 2009 | Love 0 loves
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273I think the banks are as responsible as they ever are, which is responsible for their profits and not for the wellbeing of their borrowers. One of the reasons mortgage rates are so far about interest rates at the moment is that banks are building in a safety net in case of future interest rate rises or economic troubles. That way if more people default it isn't a great problem, as the banks are making plenty of money on the good payers. From the point of view of the borrowers...I guess it all depends on the individual. I know I can continue paying if rates rise as high as 8%, but other people may not be so lucky.
Of course it all depends on your attitude to interest rates. There seems to be a lot of doommongers about, like ckm4328 above, who seem convinced that interest rates are about to skyrocket, but have no evidence why they should or any concept of the fundamental economics. Yes, the impact of QE is a worry, but without the £200 billion of QE the growth in M4 money lending over the last year would have been zero. So without the QE, we'd already be in a period of deflation. In addition, no one seems to consider that inflation requires companies to raise their prices. But as there is currently around 40% of surplus capacity in global production, no company can raise its prices because if they do they lose all their customers to companies with the capacity to absorb them. Don't get me wrong, there is a risk of entering a period of high inflation, but given the UK's exposure to the global economy, it's a little narrow minded to think that our £200 billion of additional money, which hasn't made up for the loss of money supply due to the credit crunch, is going to make a major difference when there's around $20 trillion of excess capacity in the global economy.
For more information:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ae48SCvESxFM
Posted on 21 November 2009 | Love 0 loves
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273Jerrers, personally I would stick with the SVR for now, particularly if the saving is that large. I'm sticking with SVR on my flat, and have saved £250 a month from the previous fixed rate. Yes, rates may rise, but they will only start to rise again once the capacity and money supply problems I've mentioned above have been at least partially addressed. That is likely to take at least a year, possibly more, and the BofE itself projects that interest rates will remain around current levels until 2012. But yes, store as much of the savings as you can - the elimination of excess capacity can only mean one thing. Companies going bust, jobs being lost, wages being cut. It shouldn't hit us too hard in the UK, but unemployment probably still has a fair way to go up yet, and you don't want to be caught without a cash cushion if you are one of the unlucky ones.
Posted on 21 November 2009 | Love 0 loves
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0I read I should consider what would happen if the cost went to a monthly £10 for each £1,000 borrowed.
It came from actual historic rates of the 1970s or early 1980s I think
My mortgage is not so high now so I'd be ok but it makes you think - less than inflation pay rises for many years and no pay rise t all for the last 2, nor prospect of 1 in sight
Posted on 23 November 2009 | Love 0 loves
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