Interest Rates - How aware are new borrowers ?

[NickCQ]

s1962a said:

Assuming a couple have put down a 25% deposit, their mortgage is £400k

The bank of mum and dad types might be putting down £100k, but there are lots out there with 95% mortgages and no familial resources who would be a bit shafted.

[s1962a]

NickCQ said:

s1962a said:

Assuming a couple have put down a 25% deposit, their mortgage is £400k

The bank of mum and dad types might be putting down £100k, but there are lots out there with 95% mortgages and no familial resources who would be a bit shafted.

Are there that many though though? You'd have to have pretty amazing credit these days to get a 95% mortgage.

[Wacky Racer]

Simpo Two said:

Of course, just as surely as the sun comes up in the morning. I survived the 15% days, got the medal Many did not.

Me too Simpo, these young whippersnappers don't know they are born with these low rates

(And we only had three channels on the telly)

[BoRED S2upid]

Jon39 said:

Hilarious. -

However the topic point is, do you think such low interest rates are tempting people now to save less and borrow more ?

If a significant rate increase occurred, and economic shocks tend to arise suddenly and often for unexpected reasons, then would some, perhaps many borrowers be unable to service their loans ?

Yes of course I’m in my 40’s and am astonished at the amount of free money on offer. I have a fancy carbon road bike, phone, watch and fitted wardrobes all on zero % credit. Not because I wanted to or needed to but I may as well use their money than mine. I’m pretty sure though that all these deals are fixed at 0% for the duration so it’s probably not as scary an issue as it could be.

Mortgage rates as low as 1.2% is ludicrous.

[Scootersp]

alfaspecial said:

....loads of good stuff and I like this saying.

Profits have been privatised, losses socialised.

Basically the cliche' "can kicking", doing what doesn't hurt too much on the face of it for now and seeing what happens?

[JapanRed]

I’d wager that if rates rose to 6% a lot of people would be in a lot of trouble.

People have short term memories. There would be a lot of financed cars being sent back and a lot of houses being repossessed I think.

[Fittster]

JapanRed said:

I’d wager that if rates rose to 6% a lot of people would be in a lot of trouble.

People have short term memories. There would be a lot of financed cars being sent back and a lot of houses being repossessed I think.

Why would interest rates go up to 6%?

For someone with the username including Japan, I'd think you'd be aware that demographics can lead to interest rates being very low for a very, very long time.

[FukeLreeman]

Jon39 said:

Is there trouble ahead ? The financial crash ten years ago was connected with high levels of borrowing, governments, corporate and personal. Debt levels now are even higher than they were in 2008.

Nope. Financial crash wasn't to do with high levels of borrowing. It was bad debt that was the issue.

[romeogolf]

s1962a said:

Are there that many though though? You'd have to have pretty amazing credit these days to get a 95% mortgage.

I think it's more that you need to have a solid income with good affordability, rather than a squeaky clean credit history.

[anonymous-user]

FukeLreeman said:

Financial crash wasn't to do with high levels of borrowing. It was bad debt that was the issue.

Surely the two are directly related. The more highly people are borrowed, the more likely they are to go bad.

Hence the criticism of 100% mortgages etc.

[Jon39]

FukeLreeman said:

Jon39 said:

Is there trouble ahead ? The financial crash ten years ago was connected with high levels of borrowing, governments, corporate and personal. Debt levels now are even higher than they were in 2008.

Nope. Financial crash wasn't to do with high levels of borrowing. It was bad debt that was the issue.

rockin said:

Surely the two are directly related. The more highly people are borrowed, the more likely they are to go bad.

Hence the criticism of 100% mortgages etc.

Yes, obviously not the same in every case, but too much borrowing can certainly be more likely to result in a bad debt.

In USA there were what I think were named 'trailer park' loans. An HSBC subsidiary was involved with that. Honourably they did not walk away, but took all those debts 'on the chin', well their shareholders did.

In the UK one of the first indications of trouble was in Septembef 2007, on the BBC Radio 4 Today programme. The CEO of Northern Rock spoke about not being able to refinance a debt due for repayment. I was amazed that a CEO was even talking about such a matter on a public radio station. Perhaps he had not slept for days. Northern Rock was a mutual building society, but became a listed company. They were then free from the building societies borrowing restrictions and seemed to lend to almost anyone who could breath. They became known for 'liar loans', where incomes were exaggerated and not checked, also the 125% mortgages where you could have a good time with the extra money.

Being a motoring forum, we must not forget Aston Martin. The Company borrowings are now approaching £1,000,000,000. Their bonds are all due for repayment on the same day, 15th April 2022. If those cannot be refinanced, probably at a higher interest rate than the present bonds, then calamity. The annual interest cost might possibly exceed the annual net profits, which would obviously be of concern to potential lenders.

Edited by Jon39 on Thursday 20th February 14:29

[Fonzey]

s1962a said:

Are there that many though though? You'd have to have pretty amazing credit these days to get a 95% mortgage.

Combined with the 'help to buy' schemes on newbuilds these are effectively quite common again at the moment.

I got a 100% mortgage (in effect) in 2006 due to the help to buy iteration that existed at the time, lesson learned and never again - ended up selling that for a loss and had to bail back out into renting for a few years to recover.

When I got my current mortgage, the lender was quite clear on showing you the indicative figures for theoretical rate rises, whether they factored in at all to their affordability calculations I'm not so sure. We got a mortgage of about half the value we were offered in principal and went for a 75% LTV instead of the 90% we were told we could get. We could have quite easily have had double the monthly repayments we currently have in a much better Instagram house, which is terrifying quite frankly.

Edited by Fonzey on Friday 21st February 11:29

[2 GKC]

Joey Deacon said:

The government have discovered the economic miracle of historic low interest rates and Quantative Easing and I can't see interest rates going up significantly, at least not in the next ten years or so. Interest rates are currently 0.5%, so if they even went up to 1% it would mean they have doubled.

The majority of people I speak to seem to have a nice standard of living (Nice house, newish car, iPhone, holidays etc.), yet are living paycheque to paycheque. One guy I work with has £30k of credit card debt and has a lease on a BMW M140i and doesn't seem worried at all.

I try and save around 50% of my salary each month, and out of choice I drive a shed and have no real interest in owning the latest must have phone/laptop/tablet/car etc. However, it is clear the government hates money hoarders because they have pretty much made it pointless to have any savings as they are actually devaluing each month due to inflation being higher than any interest you might get.

The government have actually done a brilliant job of convincing people to get into debt and causing them to voluntarily sign up to legal slavery to pay off all this debt. Debt, which years ago was seen as an embarrassing situation to be in has now been rebranded as credit and having a good credit score so you can get more credit is seen as an aspirational thing.

As was mentioned earlier in this thread, it almost seems that people are resigned to working until they die, but the reality is nobody is going to want to employ you when you get into your 60s. I have just been into London today with work, I hardly saw anyone on the train much past 55, I can only think they had enough and jacked it in or get persuaded to resign at a certain age.

How are people going to be able to afford to live when they have no savings, loads of debt and can't get a job anymore? This literally keeps me up at night and reminds me why I save 50% despite the pathetic 1.3% interest I am getting.

I always believe the best thing to do is the opposite of what the majority of people are doing.

Interest rate has been 0.75% since the middle of 2018

[JapanRed]

Fittster said:

JapanRed said:

I’d wager that if rates rose to 6% a lot of people would be in a lot of trouble.

People have short term memories. There would be a lot of financed cars being sent back and a lot of houses being repossessed I think.

Why would interest rates go up to 6%?

For someone with the username including Japan, I'd think you'd be aware that demographics can lead to interest rates being very low for a very, very long time.

Wow where to start with this drivel;

1) Interest rates could go up to 6% for a million reasons. I’m not going to list them all for you. Do I think they will in the next 5 years, no. In the next 15, probably.

2) Why would I have any awareness of Japan just because my username has Japan in it? Tard

[Jon39]

JapanRed said:

2) Why would I have any awareness of Japan just because my username has Japan in it?

The sequence of events was a long time ago.

The Japanese stock market reached an extremely high PE ratio, so therefore yields were negligible. Investing under those circumstances meant hoping for even more share price increases, because the tiny dividend income was hardly worthwhile.

The usual comment was heard, " It is different this time".
You can guess what happened, and I think the difficult economy there has been accompanied by very low interest rates ever since.

[Evolved]

bhstewie said:

You need to invest if you want to stay ahead of inflation.

I wish I had realised this years ago but I guess it's never too late to start.

Plenty of threads on here on where to start.

Care to share a couple? Interested and would like to have a read.

[bogie]

Evolved said:

bhstewie said:

You need to invest if you want to stay ahead of inflation.

I wish I had realised this years ago but I guess it's never too late to start.

Plenty of threads on here on where to start.

Care to share a couple? Interested and would like to have a read.

the Intelligent Money sticky at the top of this section is a good start

[bitchstewie]

Evolved said:

bhstewie said:

You need to invest if you want to stay ahead of inflation.

I wish I had realised this years ago but I guess it's never too late to start.

Plenty of threads on here on where to start.

Care to share a couple? Interested and would like to have a read.

Spend an hour reading the Finance forum here for a start

Google "LifeStrategy" and of course there's the Intelligent Money thread.

[Fittster]

JapanRed said:

Fittster said:

JapanRed said:

I’d wager that if rates rose to 6% a lot of people would be in a lot of trouble.

People have short term memories. There would be a lot of financed cars being sent back and a lot of houses being repossessed I think.

Why would interest rates go up to 6%?

For someone with the username including Japan, I'd think you'd be aware that demographics can lead to interest rates being very low for a very, very long time.

Wow where to start with this drivel;

1) Interest rates could go up to 6% for a million reasons. I’m not going to list them all for you. Do I think they will in the next 5 years, no. In the next 15, probably.

2) Why would I have any awareness of Japan just because my username has Japan in it? Tard

Take a look at the history of Japanese interest rates:

https://tradingeconomics.com/japan/interest-rate

They have already done the negative interest rates and QE on a massive scale, nothing has had much affect. Now you might say that was due to a property / stock market boom in the 1980s but that was an awfully long time ago now.

I'd favor the explanation that the root cause of low interest rates / inflation is demographics.

There are lots of dull academic papers of Japan's demographic and interest rates but in an easier to read format:

https://www.ft.com/content/43c5d6b8-efe6-11e9-ad1e...

Japan's is further down the demographics path than many nations, but it's a route that many countries are taking.

The UK's demographic don't look quite as bad as the Japanese, largely due to immigrants to the UK, however we don't seem that keen on them anymore.

[Darkslider]

As about as newer borrower as you can get (a few weeks away from exchange on our first house) I've found it difficult to not be 100% aware of interest rates and everything else related.

As well as the stringent affordability tests we had to sit through on application for our mortgage, there's also a huge wealth of information on interest rates and their role in the economy available to new borrowers in just a five minute Google search.

As tempting as it was for us (twenties couple with no children) to max out our affordability when choosing a house, I couldn't shake the nagging doubt that we're at the bottom of the interest rate curve, and nobody can really say for sure how long we'll be down here. To that end we've ended up purchasing a property for £155k rather than the £190k we could have borrowed, which should give us a healthy safety margin should rates increase by the time our five year fix ends.

Whether or not I'm a typical FTB or not I don't know, I've been careless with credit in the past though and spent many years living payday to payday, a rut I'm keen to not slip back into again. I worry other first time buyers like myself who've yet to have their lightbulb moment might not be as cautious though.