How many would be in trouble if rates went to 10%?

incher

Peelerfart wrote: »

And we all better hope and pray that interest rates don't hit the magic 10 % figure or it's george's ar53 for all of us !

:doh:

Perhaps George has inside knowledge about Burton's imminent demise?

ILW

Joeskeppi wrote: »

I think the difference was that back then we weren't so reliant on credit and house prices were so much cheaper. IR's quite simply can't hit 12% again as half the country would be homeless in a shot.

Just because it would be horrible, does not mean it could not happen. It is an extreme case but rates in Iceland are now nudging 20%. Also rates on credit cards in the UK are quite often over 20% but nobody can stop it.

Wutang_2

I didnt realise trackers paid smaller proc fees than fixed?

maveli

ILW wrote: »

Just because it would be horrible, does not mean it could not happen. It is an extreme case but rates in Iceland are now nudging 20%. Also rates on credit cards in the UK are quite often over 20% but nobody can stop it.

Again comparing apples with Oranges.

Driving force behind Iceland, Savers and to keep that going increse the IR. Check this link to see what effect credit card have on economy http://news.bbc.co.uk/2/hi/business/7850945.stm

ILW

maveli wrote: »

Again comparing apples with Oranges.

Driving force behind Iceland, Savers and to keep that going increse the IR. Check this link to see what effect credit have on economy http://news.bbc.co.uk/2/hi/business/7850945.stm

Agreed.
But I think anyone who is basing their medium term finances on an assumption that rates will not rise could be in big trouble at some point. I believe the long term average rate for the UK is about 7.5%.
PS not sure of the relvance of the link, it appears to be about the death of cheques.

System

I don't think I've seen anyone who doesn't expect rises at all.

ILW

Joeskeppi wrote: »

I don't think I've seen anyone who doesn't expect rises at all.

I would not be so sure.
There have been quite a few people posting on this forum regrading what rate they can get with their level of deposit saying such things as "as I only have a 10% deposit the bank want a rate of 6.5% or so and I cannot afford the repayments at that price" I fear this kind of buyer could be asking for trouble.

Fliss_M

true. I must admit I see my impending drop to a tracker at 0.99% as great to pay off my credit cards. But they will be done by the end of the year. I have worked out I could get away with 8% BOE comfortably. But thats with my current job. I never thought about rates after my fixed when I took it out. I guess you get so used to them not moving, this volitility make you jumpy.

But I can imagine those who can take advantage of the drop some would fall into the trap of taking out a loan with repayments to match the money gained then be scuperd when they start to rise again

getmore4less

People that overstetch their borrowing could well be in trouble if rates go up and they have not planned for that.

Short term fixes 2/3 years give very little protection on a 25 year debt it just delays the problem.

There is definately an over emphasis on fixed rates though, reason?
1, better commisions : no idea
2, repeat business when the rate runs out : definately
3, Easier to justify the recomendation : highly likely

I think the last one may have a big influence for Advisors.

It is easy to get a client to agree that a fixed payment is good and thus makes advising a fix a no come back option, much more difficult to defend other options should it turn out to be wrong.


The sensible advice would to borrow less to give yourself some headroom for rates to go up and to over pay in the mean time to give even more protection.

2latenow

Fliss_M wrote: »

But I can imagine those who can take advantage of the drop some would fall into the trap of taking out a loan with repayments to match the money gained then be scuperd when they start to rise again

I think that's hit the nail on the head. Anyone benefitting at the moment by the low BoE rates can do 1 of 2 things... spend spend spend the money saved. Or use the money wisely to build a cushion against future rises (either by reducing the debt or saving it for a rainy day). I know that HMG want us to spend to keep the money moving round, but honestly now isn't really a suitable time to buy non-essentials --- I can't get over the number of working large CRTs being freecycled in my area, presumably by people buying large LCDs...