second credit crunch and its effect on the BOE base rate

[carspath]

as per the title, how do you see the base rate being affected?

[996c2]

Base rate can't get much lower but hopefully it will stay low for a few years longer because of the second credit crunch.

[princeperch]

when I purchased my gaff in April, with inflation where it was and the soundbites that were going around, I thought that the base rate would without a doubt be going up - so fixed for 3 years.

were I buying now I would have tracked. all indications are the base rate is staying where it is for the next 18-24 months.

at least I know what im paying a month, even if im paying a 100 quid a month premium for that peace of mind....

[Ozzie Osmond]

Base rate 0.5%

Inflation 5%

Real terms base rate = -4.5%. Can anyone explain in simple terms the real world implications of a negative base rate? Seems to me it indicates that whoever is at the top of the lending tree opuight to stop lending because they're losing money at it!

No doubt some thicko will be along to say "ah, but nobody lends at base rate". Well, in that case what is the purpose of having a base rate at all? And if it has no purpose the whole premise of this thread simply evaporates because any effect of credit crunch on base rate must be irrelevant!

OzOs

[Zod]

The base rate will not go up before 2015 at the earliest.

More fool me for fixing half of my mortgage two years ago for five years at 4.9%! I left the other half floating, ready to jump to a fixed rate as rates went up.

[groak]

My loan's 3 month libor linked, and that rate's been steadily rising for a couple of months. On Monday I'm 'fixing' 70% of it at 5.5% till 2016.

[Zod]

groak said:

My loan's 3 month libor linked, and that rate's been steadily rising for a couple of months. On Monday I'm 'fixing' 70% of it at 5.5% till 2016.

i wouldn't do that if I were you.

[hornetrider]

I anticipate an influx of smug tracker types who have a nought-point-something over base tracker. <cough>.

I am MULLERING my mortgage at the moment - it's ace.

[groak]

hornetrider said:

I am MULLERING my mortgage at the moment - it's ace.

I wouldn't repay one penny of the capital element of a property loan right now if the bank didn't insist on it. I suppose I'm 'mullering' my loan too (if you mean reducing it's capital obligation). It just feels like wasting good resources. I'd far rather be investing in a 4 wheeled depreciating asset. At least that'd be fun.

Edited by groak on Saturday 3rd December 01:40

[groak]

groak said:

Zod said:

groak said:

My loan's 3 month libor linked, and that rate's been steadily rising for a couple of months. On Monday I'm 'fixing' 70% of it at 5.5% till 2016.

i wouldn't do that if I were you.

Actually that's exactly what you said you WOULD do. ".....ready to jump to a fixed rate as rates went up...."

Fixing's not about the rate (and inflation + .5's cheap anyway) it's about the certainty.

[hornetrider]

groak said:

hornetrider said:

I am MULLERING my mortgage at the moment - it's ace.

I wouldn't repay one penny of the capital element of a property loan right now if the bank didn't insist on it. I suppose I'm 'mullering' my loan too (if you mean reducing it's capital obligation). It just feels like wasting good resources.

I see what you're saying, although you're a wee more canny than I I would say, going on your posts in other areas!

We were overpaying for a while, but have now reduced back to minimum payment and are putting the overpayment element into a deposit pot for the next place - as we can only port the outstanding mortgage value of our existing bonzer deal. Still, even with the minimum payment it's coming down big style.

[groak]

People have a perfectly understandable positive feeling about living in a home which is burden free. It somehow feels more secure. I'm just not so certain it makes much arithmetical investment sense.

Personally I've come to far prefer living in a place whose monthly mortgage I can afford than living in a place I can afford to buy with accumulated cash reserves.

[HoHoHo]

hornetrider said:

I anticipate an influx of smug tracker types who have a nought-point-something over base tracker. <cough>.

I am MULLERING my mortgage at the moment - it's ace.

.29% above base.

I've overpaid my mortgage by some thousands a month for the last 8 years rather than save. I have less than a year to go then I'm mortgage free (was due to finish in 17 years time). Hopefully rates will shoot up just as I finish my mortgage

Edited by HoHoHo on Saturday 3rd December 13:09

[HoHoHo]

hornetrider said:

I anticipate an influx of smug tracker types who have a nought-point-something over base tracker. <cough>.

I am MULLERING my mortgage at the moment - it's ace.

.29% above base.

I've overpaid my mortgage by some thousands a month for the last 8 years rather than save. I have less than a year to go then I'm mortgage free (is actually due to finish in 17 years time). Hopefully rates will shoot up just as I finish my mortgage

Edited by HoHoHo on Saturday 3rd December 13:09

[Roo]

HoHoHo said:

hornetrider said:

I anticipate an influx of smug tracker types who have a nought-point-something over base tracker. <cough>.

I am MULLERING my mortgage at the moment - it's ace.

:Bowtie:

.29% above base.

I've overpaid my mortgage by some thousands a month for the last 8 years rather than save. I have less than a year to go then I'm mortgage free (was due to finish in 17 years time). Hopefully rates will shoot up just as I finish my mortgage

Ha .19% above base.

All the time it stays low I'm partly overpaying that and chucking a bit in the pension as well.

[anonymous-user]

Me too 0.5% over base so 1.5%. Interestingly the bank keeps offering me savings products and IIRC the last one offered me something like a guaranteed 3.5 or 4% (can't recall exactly) if I kept the money in it for a year. Compared to inflation it's not brilliant but there would be nothing stopping me drawing down money from the mortgage (it's a fully flexible offset arrangement) at 1.5% and sticking it in this product. It's an odd world.

[Road Pest]

I fixed in 2007 just when it looked like rates were going to go up. Doh! 10 years in total so rates should be going up just before my deal finishes.

[HoHoHo]

Roo said:

Ha .19% above base.

All the time it stays low I'm partly overpaying that and chucking a bit in the pension as well.

Well done

I have some commercial property that will be my pension. Rather than bloody moan and go on strike and expect everything for nothing, I've stretched myself over the last few years and hopefully will be very comfortable come retirement.

[groak]

Can someone please explain this to me. You've got this REALLY CHEAP LOAN, and you're desperate to pay it off quick. I don't understand that.

I'm the flippin' opposite. I've got a loan at 3.5 over 3 month libor (about 4.5 currently) that I'm obliged (against my wishes) to repay capital from, and ALL I want to do is NOT pay off capital and borrow 10 times as much!!

[HoHoHo]

groak said:

Can someone please explain this to me. You've got this REALLY CHEAP LOAN, and you're desperate to pay it off quick. I don't understand that.

The reason why I am doing so (which may be wrong but I'm comfortable with my decision) is as follows:

Mortgage started in 2002, 25 year term and some hundreds of thousands, plus I spent several hundreds of thousand on building work.

I decided to poverpay from day one by some thousands a month and have increased that overpayment over the years (I'm fortunate and earn a fair crust). The interest currently on my mortgage is give or take £50 per month, but by overpaying I'm reducing the outstanding balance by many thousands a month (if you can do maths, you'll be able to figure out how much I owe and how much I pay back based on 12 months left to run )

Now I could pay the £X per month mortgage payment due and save the money I'm currently overpaying (and had I done so from day one I'd have many hundreds of thousands in the bank by now), but rates are and have been low on borrowings for some time and more recently not much better on savings. If I simply pay the amount due there's a good chance rates are going to increase over the next 20 years and on the assumption my mortgage ran its normal course, I would be paying a fair sum every month in interest once the rates increase.

Now granted, we had no idea base rates were going to be this low for this long, I don't think any of us had any idea that we'd experience one of the worst recessions during our lifetime, so in my instance low rates have helped me reduce the capital faster than if rates had been 5% or more.

So, the bottom line is I'm reducing my debt level whilst interest rates are low simply because traditionally you pay more to borrow money than you earn saving it (special deals/rates aside)

I'm hoping that rates will stay as they are for the next year and then (aside form my childrens lives and mortgages ), I really don't care what happens - back up to 15% would suit me . I'll then be in a + cash flow position, no mortgage lots of spare cash on a monthly basis and I can save/spend to my hearts content. If you don't overpay now, when rates go back up (which they will) you will simply pay more interest and I really don't like that thought.

I understand that I'm in a very fortunate position. I left school at 16 with limited qualifications (3 'O' Levels to be precise) and I worked hard in my early years as a young sales executive, progressed into management and then started my own business in my early 30's and have done very well for myself. Not many people I know have the financial ability to overpay by the percentage and amount I do yet still have the lifestyle I do (I also have 5 children!), but my advice is simple - reduce debt and increase your savings in that order.

As I said earlier, I may be wrong but I'm comfortable with my decision and position. I have also invested in commercial property which will afford me a good pension when I'm ready to retire (as well as being an asset whcih I can sell should I wish/need to).