How much will doomsday interest rates affect mortgage repayments

ln1234

So here's an example.

Mr. and Mrs Smith have a £100,000 mortgage on their current house and are currently paying £505 a month based on their lenders standard variable rate of 3.5%.

To control inflation the BOE raise interests substantially to 6.5% and the Smiths bank increases their SVR to 8%. How much extra will the Smiths be paying each month?

Current payment at 3.5% = £505
New payment at 8% = £780
Difference = £275

So the question is for the average Mr. and Mrs. Smith, would £275 a month extra be make or break for them in terms of mortgage payments?

If they cancelled their Sky, got a cheaper car, cancelled any holidays, and cut back on socialising they might just be able to make it.

But would they choose to do so or risk losing their home?

ln1234

My point was that people talk about interest rates going up to high levels (6.5%) quoted recently, but they fail to take into account exactly what that would transpire to in real terms.

I personally think that most homeowners would cope fine with these kind of interest rates as they are not ridiculous sums for the average homeowner. Considering sky would be around £30 and 1 average family's social expenses are £40 a week, thats £190 there already.

Arcaine

Well I think that there are several different doomsday scenarios I see....

1) Nuclear war.......personally I think that will have negative impact on the housing market, after all most insurance doesn't cover war.
2) Zombie attack....country castles and anything with a moat will go way up in value. Everything else I would be fairly bearish on.
3) Asteroid Strike.....this really depend on the size of impact. But given the fact that the earth will be covered in a blacket of dust which will lower temeratures and sinkus into another ice age anything with a south facing window will probably go up in value.
4) Large hadron collider creating a miniture black hole which sinks to the centre of the earth and causes it to explode.....all bets are off....although the BOE will probably want to continue with its QE policy.

All of which are probably more likey to happen than base rates hitting 6.5% in the short to medium term. I think that Mr and Mrs Smith will continue to enjoy Sky, a holiday and be relatively Zombie free existance until then.

The_White_Horse

i think the people that will struggle more are the ones with 250k plus mortgages - which is most people in and around London who have bought a house post 2004.

250k at 3% is 1264 a month - that is already a struggle for some

250k at 8% is 1956 a month - an increase of 687

maveli

Outstanding mortgage amount : 120K on interest only
current interest rate : 0.73%
monthly payment : £73.00/month
Doomsday monthly payment (8%) : £800.00/month

Take my home please

The_White_Horse

to be honest is 8% doomsday? i would have thought 12% is more doomsday.

[Deleted User]

I would have no sympathy at all,they should have been saving most if not all of the savings they have made while their svr was 3.5%.However I very much doubt we will see base rates of 6.5% in the next few years,but if their svr was 3,5% with base rate at .5% then the new svr with base rate of 6.5% would be 9.5% not 8 % as OP quoted,making the new payment around £900

Pobby

Just have to get on with it. Back in early 90`s our mortgage went up by 50% +. Over £700 a month was a lot of dough then. Oh yes, and that was on a £58,000 mortgage.

fc123

Pobby wrote: »

Just have to get on with it. Back in early 90`s our mortgage went up by 50% +. Over £700 a month was a lot of dough then. Oh yes, and that was on a £58,000 mortgage.

OMG ours hit £671 on 60k.....was that when they hit 15%? No fixes, payment hols or anything back in the olden days.
You just had to get on with it.

So, yes we had cheaper house prices but it cost loads more pcm to cover the interest.

I have to add (again) we couldn't afford to buy anything to put into our cheaper houses either......cos 'stuff' like fridges cost a fortune in real terms.

HAMISH_MCTAVISH

fc123 wrote: »

OMG ours hit £671 on 60k.....was that when they hit 15%? No fixes, payment hols or anything back in the olden days.
You just had to get on with it.

So, yes we had cheaper house prices but it cost loads more pcm to cover the interest.

I have to add (again) we couldn't afford to buy anything to put into our cheaper houses either......cos 'stuff' like fridges cost a fortune in real terms.

Very true.

People forget how much harder it was in those days, overall.

vivatifosi

fc123 wrote: »

OMG ours hit £671 on 60k.....was that when they hit 15%?

My £36k mortgage hit £452pm on SVR back then. Really hurt. I can't get that worried about rate hikes when people should have taken into account the historical low we're at. More worried about the hikes in everything else, like tax. Ouch...