Interest Rates

katehesk

Me and my boyfriend have recently started thinking about buying our own place and are in the process of saving a deposit.

It's our intention to look for a 'fixer upper' if we can, and get a house really cheaply.

We recently saw a property selling for 61k and loved it but it turned out it wasn't mortgagable due to the side wall of the property needing to be replaced. Anyway we are looking at properties in the region of 70k possibly up to 80k (which I realise may seem unfathomable to those living in the south or London, but such properties can be found around here ).

If we buy a property and take out a mortgage for say, 63K and fix at 5.99% for 5 years, we have worked out that it is within our means to afford it, along with bills etc.

My worry is that if interest rates get really high, like 12% or something we couldn't manage the repayments (after the fixed period is over obviously). How likely is that to happen? Has anyone ever in their lifetime paid 12% interest on a mortgage?

What sort of things in the economy would make interest rates go up so high? Do they go up when the economy is in decline or is it the other way around?

Sorry if I sound like a dunce but i know nothing about all this stuff.

Thanks in advance.

Cannon_Fodder

I have paid 12%...I started a mortgage at 12%...

So, luckily, despite peaking a touch higher, it was never an issue. A small proportion extra of what I was already paying.

No certainty it will get into double figures, but it would be sensible to be sure you can afford a higher figure than you start from, say at least 8%.

Don't just save a deposit, get any loans, overdrafts or credit cards paid off. Lenders are very picky at the moment.

benjo

1990's I had a mortgage at 8%, discounted to 7% for the first year - interest rates went upto 15% during that year, they didnt stay that high for more than a day - but it had a few people sweating.

What I can say with some certainty is that interest rates will rise in the future - dont know when or by how much or for how long - but they will rise.

opinions4u

If we buy a property and take out a mortgage for say, 63K and fix at 5.99% for 5 years, we have worked out that it is within our means to afford it, along with bills etc.

My worry is that if interest rates get really high, like 12% or something we couldn't manage the repayments (after the fixed period is over obviously). How likely is that to happen? Has anyone ever in their lifetime paid 12% interest on a mortgage? [/quote]15.4% was the SVR I was paying around 1990.

What sort of things in the economy would make interest rates go up so high? Do they go up when the economy is in decline or is it the other way around?

It depends on the economic policies of the day. But poor economy usually means lowering rates to give people more money to stimulate spending and investment.

If you save 1% of your mortgage balance every year (e.g. £60k loan = £50 a month) you can build up a contingency fund to help you adjust to higher payments later on.

You may (possibly) have increasing incomes too, so in 5 years the mortgage payment is less of a percentage of your take home pay.

If you rent, I think it's fair to say that rents will go up every year too.

katehesk

Thanks for the replies.

We both have car finance so after the next 3 years are up we will be in a better position financially and so might be able to afford a higher repayment should interest rates go up. It's just scary and that is why we ae looking at low value properties so that we don't overstretch ourselves financially.