If you where buying today at what rate would you stress test?

kennyboy66_2

bluey890 wrote: »

Does your model factor in what might happen to the larger economy should interest rates hit 10%? Or is it a rather simple, hold other variables constant one?

All the people who assume that rates are heading for 15%, usually assume that wage rates will stay static.




*Awaits the usual nonsense about Iceland, or half baked anecdotes about Uncle Fred not getting a pay rise at all from 1979 - 1990.*

MrDT

Interesting question, and my immediate thought (before opening the thread) was in the region of 10-12%.

I have an alternative slant on it though.

If buying a relatively cheap house, with a good sized deposit (say 50% of purchase price), planning to be mortgage free early, and looking to be able to manage rate rises without worry... Why not reduce the term and fix for the duration?

The co-operative bank are offering a ten year fix at 5.29%. Buy an 80k house with 40k down, and reduce the term to 10 years, that's £440 a month and mortgage free in ten years. £53,193 total cost over the ten years, much cheaper than a standard 25 year term mortgage.

Provided the repayments are affordable and remain so (i.e. no massive wage deflation and no massive inflation of day to day essentials - food/fuel) there would be no problem. No need to have a 'stress test' figure in mind - you have fixed at an affordable level for the whole term.

If I were buying now I think I'd give this approach some serious consideration.

A regular 25 year term, fixed for ten years, and paying off the outstanding mortgage after ten years from savings would be a more flexible approach. The lower monthly payments would help shield from issues like redundancy etc. A shorter term from day one would appeal to me though, the 'pay off the mortgage' fund would be in danger of being splurged.

zzzLazyDaisy

MrDT wrote: »

The co-operative bank are offering a ten year fix at 5.29%. Buy an 80k house with 40k down, and reduce the term to 10 years, that's £440 a month and mortgage free in ten years.

Although to be fair, there are not many places in the country where you can find a decent house for £80 - especially if you are looking for a family home.

MrDT

zzzLazyDaisy wrote: »

Although to be fair, there are not many places in the country where you can find a decent house for £80 - especially if you are looking for a family home.

So change the numbers to suit your situation

There are 15 and even 30 year fixes available.

Pandini

abaxas wrote: »

Without being rude...

Stress testing at 15% is stupid. If we do get to that level of rates, the lack of food in the supermarkets, rioting, etc ,would probably be more of a worry.

There would be millions of people simply unable to make payments on their mortgages. The system would be broken.

Without being rude ...

See 1990.

Pee

As the interest rates peaking at 18% were when I was at an impressionable age - about 17, doing economics A level... I wish I knew now what i thought I knew then - I have to admit I do consider what would happen to my mortgage if that was to happen again. I would be able to afford that - just - and would have been able to afford it - with even more strain - when I started the mortgage albeit through letting rooms but not of course if I had lost my job.

geoffky

abaxas wrote: »

without being rude...

Stress testing at 15% is stupid. If we do get to that level of rates, the lack of food in the supermarkets, rioting, etc ,would probably be more of a worry.

There would be millions of people simply unable to make payments on their mortgages. The system would be broken.

1971 7.92% 1988 12.13% 1972 8.08% 1989 15.75% 1973 12.10% 1990 16.63% 1974 13.90% 1991 13.42% 1975 12.77% 1992 11.29% 1976 13.90% 1993 7.79% 1977 10.21% 1994 7.35% 1978 11.25% 1995 8.15% 1979 15.96% 1996 7.89% 1980 18.17% 1997 8.56% 1981 15.23% 1998 9.21% 1982 13.80% 1999 7.33% 1983 11.84% 2000 7.98% 1984 11.64% 2001 7.08% 1985 14.17% 2002 6.00% 1986 12.71% 2003 5.69% 1987 11.50% 2004 tb

StevieJ

Pandini wrote: »

Without being rude ...

See 1990.

I know I keep telling them how lucky FTBers are these days

JayScottGreenspan

StevieJ wrote: »

I know I keep telling them how lucky FTBers are these days

Not only has a huge amount of wealth been transferred from the young to the old, but apparently they should be happy about it. :think:

Pee

Given that this will save money in supporting and caring for the elderly, tax payers money, I think that may be a benefit.