Interest Rates - How aware are new borrowers ?
Discussion
How aware might post 2008 first time mortgage borrowers be, that the present low interest rates are far lower than historic levels ?
A return to historic norms, will increase their monthly payments considerably (obviously after the expiry of any fixed-term arrangements).
For the past 10 years, Bank of England base rates have been below 1%.
Mortgage borrowers, whose interest rates are roughly based on those set by the Bank of England, are enjoying the lowest interest rates since 1694.
The longer that these low rates continue, does it perhaps mean that borrowers consider them as normal and consequently may increase their borrowing ?
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.
Bank of England Base Rates.
In 1684 = 6%
During the 1960s = 5% to 8%.
During the 1970s = began 7%, mostly 11% to 12%, ended 17%.
During the 1980s = mostly above 10%.
During the 1990s = 13% falling to 5%.
In 2008/2009 = down from 5% to 0.5%.
Wacky Racer said:
They went up to 15% for a brief period around 1991.
Yes, 16 September 1992, UK leaves the European Exchange Rate Mechanism. (ERM was a theoretical fantasy, it was never going to work.) Minimum Lending Rate was raised to 12%, and planned to be 15% (with effect from 17 September 1992; never implemented).
The 300 year record high seems to be 15 Novembrr 1979 when the increase was to 17%. Rates remained at that level for 7 months, then reduced to 16% !
There is of course always a rough link to price inflation. Although the current older generation had to pay high mortgage interest rates, they benefitted from high price inflation (provided your employer could afford inflationary pay increases). High inflation reduced the original capital value of the loan being repayed.
Piha said:
LOL @ all the grampy's on here thinking that anyone under 50 years old doesn't have the ability to work out and understand interest rates & repayments if interest rates return to levels last seen in the olden days!
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 ?
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.
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
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.
Gassing Station | Finance | Top of Page | What's New | My Stuff