Interest rates

[Bing o]

anonymous said:

[redacted]

Is it margin, or a symptom of the risk profile of UK property?

[Bing o]

anonymous said:

[redacted]

But isn't the risk that you're lending on an asset who's value will be eroded by QE? ie if the bank lends 200k today, and we see inflation at 4% for ten years, the notional or equity is worse far less compared to them putting that money in another investment?

(That explanation is more for my benefit than yours )

[cymtriks]

Dave_ST220 said:

Who in their right mind thinks rates will stay low for the period of a 25 year loan?

You'd be surprised. Most people look no further than the current rate.

The first time I enquired about a mortgage I asked what the rate could vary by. I was told that no one knew but historically, as far as they could recall, they had been between about 5 and 15. I asked what the payments would be if rates went up to 15 and was promptly met up total surprise. "No one asks that question" they mumbled.

Five years later, different bank, different town, same conversation and same responses.

Eight years ago, another discussion. I asked what the payments would be at X, Y and Z rates. Same look of surprise. So I asked if that was a question they often heard as, obviously, rates could go up. They looked utterly blank and said "No one has ever asked me that before."

So the evidence is Me, you, and a few others consider this.

The vast majority haven't allowed for rates outside the current range of under 5 percent at all. That is why six or seven would be a real problem. Yes, they are a bit stupid, but they are the majority of the market.

[Dave_ST220]

/\,yes you are probably correct, although when i asked the question with the one account they happily gave me the figures.

[M-J-B]

Dave_ST220 said:

Who in their right mind thinks rates will stay low for the period of a 25 year loan?

Totally agree.

If you commit to a financial agreement that is dependent to a moving interest rate, calculate your monthly payment as a worst case scenario. That way should the rates double or more and you can still afford it you won't be in the st if it happens.

[Dave_ST220]

Exactly. I have factored it in, i don't expect rates to go double digit buy you NEVER know. If you had said to someone 5 years ago the major banks would nearly collapse what would they say?!

[Digga]

Dave_ST220 said:

/\,yes you are probably correct, although when i asked the question with the one account they happily gave me the figures.

+1 Same currnet account mortgate, same fugures requested and provided.

On a related topic to the interest debate, HundredthIdiot posted this link on the Greek default thread: Irish Times

If this hits the fan, Greek carry on down it's current trajectory then even if Portugal, Spain and Italy don't suddenly find a big heap of debt that had 'somehow' been swept under thier respetive carpets, the Euro is junk.

Surely in this case, the UK can site back, allow a bit of inflation - reduce indebtedness and re-ballance house prices nicely - and watch the turmoil.

[jshell]

Whereas I've been taking the opportunity to pay extra into my mortgage with such low rates, my bank liaison tells me that in most cases people are blowing the savings and expecting low rates for the forseeable...

[Digga]

jshell said:

Whereas I've been taking the opportunity to pay extra into my mortgage with such low rates, my bank liaison tells me that in most cases people are blowing the savings and expecting low rates for the forseeable...

+1 It's kind of anazing that, given the recent crisis, people are so moronic.

Our bank recently financed a new client. The firm was successful and profitable and the board was made up of around ten or eleven directors, each earning over £100k. In line with recently tightened banking practice, all directors are now personally scrutinished, which I guess makes sense - you don't want bankrupt directors on board and anyone who's in pecuniary difficulties is also more likely to defraud the firm, take bribes etc. - and their own financial prudence was checked. The bank manager reckoned you could split the pack alomst in two; half spending only 70 to 90p of each pound earned, with the others just spunking money left right and centre; hugely unsustainanble morgages, car loans on daft baloon payment schemes, overdrafts, loans and even unpaid credit card borrowing.

So it's not just the feckless Ocean finance customers.

[andy c]

I have done a forecast spreadsheet on my predicament and I would start to struggle at rates around 10% with a fix at 2 over base/libor therefore 12% repayment.I would find it very hard at 14% rates paying at 16%, but not impossible if income streams remain.

Anyone think I am being too cautious?

[chris watton]

andy c said:

I have done a forecast spreadsheet on my predicament and I would start to struggle at rates around 10% with a fix at 2 over base/libor therefore 12% repayment.I would find it very hard at 14% rates paying at 16%, but not impossible if income streams remain.

Anyone think I am being too cautious?

You can never be too cautious where stuff like this is concerned - it's always best to work out finances based on a worst case scenario.

[andy c]

I know .Problem is I am just not a risk taker.Years ago with interest rates at15% I had nothing and thus couldnt loose anything.Nows different.

Is 15% all it could go up to?I know there would be millions in the st if it did but look what happened in Japan.

Thats the question.You just never know whats in store.

[jshell]

anonymous said:

[redacted]

That's the good thing about my 4.5% apr deal, I can also overpay by 10% of outstanding balance per annum!

[andy c]

Problem with fixing is that if rates stay below 3% I could halve the debt in 3 years.At 5% it would take longer.
Not sure they do fixed rates on commercial either.

figures from my head but you get my drift.

[V8A*ndy]

-Pete- said:

I'd expect most mortgages to be 6-8% next year,

This is a fair prediction

[cymtriks]

-Pete- said:

I'd expect most mortgages to be 6-8% next year

Perhaps it should be but:

• We still want a recovery, that won't help at all
• Lots of people will be in trouble at that rate
• The political pressure to prevent rates that high will be enormous

The last two should not be overlooked. They work together and how often do you hear people, even 18 years later, label the Tories as a high interest rate and repossesion party? We have had rates mostly under 5 percent for 15 years. In those fifteen years almost everyone who has a mortgage has moved or remortgaged and very few ever considered rates that high. Also there a lot of people with other debts to service or who rely on two incomes.

Add a double dip recession and we have a housing market collapse on the cards.

Savers will not gain. Inflation usually tracks the interest rates over time, you'll end up kidding yourself that getting 6 percent interest at 7 percent inflation is somehow making you more money than getting 2 percent at 3 percent inflation (yes, they are both losing you 1 percent a year)

[TheHitman]

This thread scares me a little

I am in a strange situation (for me), I have been living with a housemate for the last 4 years or so (sharing the mortgage and everything in joint names) and he now has a promotion forcing him to move away.

I can either sell my house at a possible 8k loss (shared) and then more than likely rent, who knows next time I will be able to get on the property ladder.

Second option is I stay where I am and my parents put a sum of money into the house to help me out with the monthly costs which I can afford upto a decent level. Although if the rates go to a level that has been discussed in this thread I will be screwed for want of a better word.

[NoelWatson]

cymtriks said:

NoelWatson said:

cymtriks said:

The longer rates stay low the less likely they are to climb high quickly.

Don't understand this?

People get used to low rates for 15 years.
Loans get taken out at low rates for 15 years
Lending criteria reflects low rates for 15 years

After 15 years a six percent rate becomes as damaging to the house market and the economy as sixteen was 20 years ago.

The electorate and politicians still remember the late eighties and early nineties as a time of high rates, bad politicians and repossions.

The longer rates stay low the more political will there will be to keep them low. If they can't keep them low then the next best thing is let them grow slowly.

What it really boils down to is how much are politicians willing to do, or capable of doing, to stay in their jobs.

How can they tame external influences - look at Greece?

[Digga]

NoelWatson said:

cymtriks said:

NoelWatson said:

cymtriks said:

The longer rates stay low the less likely they are to climb high quickly.

Don't understand this?

People get used to low rates for 15 years.
Loans get taken out at low rates for 15 years
Lending criteria reflects low rates for 15 years

After 15 years a six percent rate becomes as damaging to the house market and the economy as sixteen was 20 years ago.

The electorate and politicians still remember the late eighties and early nineties as a time of high rates, bad politicians and repossions.

The longer rates stay low the more political will there will be to keep them low. If they can't keep them low then the next best thing is let them grow slowly.

What it really boils down to is how much are politicians willing to do, or capable of doing, to stay in their jobs.

How can they tame external influences - look at Greece?

There is some merit in what cymtriks says. LVT ratios have changed drastically, as have public expectations of what constitutes a likely or reasonable bank rate.

[NoelWatson]

musclecarmad said:

as a cynic i feel rates will start rising not long after the election even though the mpc is supposed to be independent.

i also think, as a cynic, that we may have double dipped but the figures were massaged.

It would be good to see GDP number sans Government temporary stimulus.