MSE News: Base Rate held at 0.5%

Lotus-eater

Julieq and Hamish better take a look at you, because apparently you don't exist, everything is hunky dory and no one owes too much.
Paul, I admire your desire to get back to a more stable financial footing, but I have a question if you don't mind.
What would interest rates have to rise to, to push you over the edge?
If we had 6%, would you be able to cope?

Paulgonnabedebtfree

Lotus-eater wrote: »

Julieq and Hamish better take a look at you, because apparently you don't exist, everything is hunky dory and no one owes too much.
Paul, I admire your desire to get back to a more stable financial footing, but I have a question if you don't mind.
What would interest rates have to rise to, to push you over the edge?
If we had 6%, would you be able to cope?

Not an easy question to answer for several reasons.
My mortgage is not based directly on base rate. It is the 3 monthly LIBOR + 2% and is now to be reset each quarter. LIBOR can be more volatile than base rate when lenders feel wobbly about lending to each other. My fixed rate until recently had been 5.45% and I was managing reasonably OK on that. Each percentage pioint seems to equate to about £68 with my mortgage so I reckon in my current level of income with my current outgoings, about 7.5% (i.e. 3 monthly LIBOR at 5.5%) would start to stretch me.
However, that assumes current income remaining static. Also, at the rate I am reducing my credit card debt, my minimum payments have dropped a fair bit since the start of the year. Another issue is that my vehicle loan will be completed in 13 months and will save me £200 a month - though this may be offset by higher repair costs as it ages.
I think the biggest thing going for me is that I can live even more tightly if I really must and I have the capability of increasing my income a fair bit. Even in a recession it seems that there is a good call for my type of work (so far). Of course, a potential difficulty is that an interest rate rise for me will be one that also affects many of my customers. It has to be said that for some (mainly the pensioners and those who are well advanced in their mortgages) an interest rate risae could actually improve their situation as they start to earn a bit on their savings.
In a year's time, I could probably manage an 8.5% mortgage rate and in two years time, perhaps a 10.5% rate. For me, I see this as a race against time to repay as much unsecured debt as possible to make room for an eventual rise in mortgage rates. In fact, if someone were to offer me a fix for 10 years at 7%, I would probably take that. Not that anyone would of course because of the LTV and income multiplier issues.
I am fortunate in one respect in that my personal loans are old ones at good rates (vehicle loan is at 5.7%) and nearly all my CC debt is LOB at 5.9 - 7.9% which meands that a bigger chunk of my repayments attack the debt rather than feeding the companies' interest demands.

EDITED TO SAY:- Most of my debt accrued due to reasons that are no longer an issue (ex relationship followed by a nasty illness that cost me work) so I am not a person who is addicted to frivolous spend ups. Also, the income multiplier for a mortgage is too rigid IMO. For someone like me, if I only had a debt for vehicle loan and no other debt, I could cope with quite a large multiplier so long as my mortgage rate was capped in single figures. Hard to put a figure on it but it would be substantially more than what is currently considered the norm.

inspector_monkfish

Paulgonnabedebtfree wrote: »

Not an easy question to answer for several reasons.
My mortgage is not based directly on base rate. It is the 3 monthly LIBOR + 2% and is now to be reset each quarter. LIBOR can be more volatile than base rate when lenders feel wobbly about lending to each other. My fixed rate until recently had been 5.45% and I was managing reasonably OK on that. Each percentage pioint seems to equate to about £68 with my mortgage so I reckon in my current level of income with my current outgoings, about 7.5% (i.e. 3 monthly LIBOR at 5.5%) would start to stretch me.
However, that assumes current income remaining static. Also, at the rate I am reducing my credit card debt, my minimum payments have dropped a fair bit since the start of the year. Another issue is that my vehicle loan will be completed in 13 months and will save me £200 a month - though this may be offset by higher repair costs as it ages.
I think the biggest thing going for me is that I can live even more tightly if I really must and I have the capability of increasing my income a fair bit. Even in a recession it seems that there is a good call for my type of work (so far). Of course, a potential difficulty is that an interest rate rise for me will be one that also affects many of my customers. It has to be said that for some (mainly the pensioners and those who are well advanced in their mortgages) an interest rate risae could actually improve their situation as they start to earn a bit on their savings.
In a year's time, I could probably manage an 8.5% mortgage rate and in two years time, perhaps a 10.5% rate. For me, I see this as a race against time to repay as much unsecured debt as possible to make room for an eventual rise in mortgage rates. In fact, if someone were to offer me a fix for 10 years at 7%, I would probably take that. Not that anyone would of course because of the LTV and income multiplier issues.
I am fortunate in one respect in that my personal loans are old ones at good rates (vehicle loan is at 5.7%) and nearly all my CC debt is LOB at 5.9 - 7.9% which meands that a bigger chunk of my repayments attack the debt rather than feeding the companies' interest demands.

with 3mth LIBOR currently at 0.62688%, you gotta great big massive cushion to support you !!

At the moment LIBORs are ticking down a point everyday, and with BOE base rate remaing this low (if not lower) for the next 1 million years, sounds like you are quids in my friend !

Paulgonnabedebtfree

inspector_monkfish wrote: »

with 3mth LIBOR currently at 0.62688%, you gotta great big massive cushion to support you !!

At the moment LIBORs are ticking down a point everyday, and with BOE base rate remaing this low (if not lower) for the next 1 million years, sounds like you are quids in my friend !

For a year or two surely. After that, it's anybody's guess. Certainly things should be OKish until after the next election. My hope is that by the time LIBOR starts to rise with any significance, the bulk of my unsecured debt will be history and that I will be able to start focussing on making overpayments on the mortgage. If LIBOR was where it was a year ago, things would be trickier. That could happen again if/when the financial system starts to creak. In spite of recent cautious optimism, I have reservations about the world economy and about the capitalist model in general. Also, if low rates do persist for a long time, it could even be a softeniing up for direct income tax rises. I don't want to come across as a pessimist but although some have done OK from the system, I see it as basically, seriously flawed. Something that only works if people believe it works has the aura of smoke and mirrors about it.
I always take it back to basics as it helps me.
Do I have food?
Do I have shelter?
Do i have reasonable health?

At various times in my life one or more of those things have been missing - sometimes more than one at the same time. I got through that so even if I end up homeless and bankrupt (I don't believe I will incidentally), I would cope with that too.