A quarter of home owners live on 'financial precipice'

Pete111

Emy1501 wrote: »

Banks have lost out from those sitting on low SVR's. They will need to make their money back. Those on 4-5% trackers will see their interest rates rise in line with any rate rise as will many on SVR's. The majority of new mortgages last year were trackers. Also most people when they come to the end of any deal are on SVR's.

Ok but an optimist might point out that:

Firstly, it looks like interest rates are going nowhere fast

Secondly most SVRs are around 3.5-4.5% and banks are making plenty on these. You may be referring to the older base rate trackers (many of which were fixed term and have now ended) or those on the 'base + x %' deals that kicked in after certain fixed term mortgages expired. I don't think that these account for vast swathes of the mortgage market - quite the opposite in fact

Thirdly if rates rose to say 3.5% and some banks started trying to charge 8-9% you would probably find those lenders less affected by the credit crunch (ie HSBC) stealing their custom by setting mortgages at a level more similar to 2005-7 when rates were typically 1% or so over base.

Finally, many of those on low deals or low SVRs will probably have been overpaying far more than they would have otherwise done (I know I have!) as such the overall effect of rate rises will be softened.

Just an alternative POV

chucky

Really2 wrote: »

Do you don't think they will move as soon as rates start to rise seeing they are unlikely to have any redemption penalty.

I am not aware of banks incurring losses on trackers or SVR TBH.

probably building societies

not due to SVR's but probably in relation to what they pay related to their longer term deposit rates - so a net loss

Pobby

I have a lot to thank MSE for. We did the " financial spring clean " when times where good. Stopping not needed insurance policies, reviewing utilities ( a water meter has saved us hundreds ) and so on. This resulted in a whopping £300 plus saving per month that can be put aside.

What was all this borrowing binge about? Not just with the public but also with the government. Surely it`s pretty basic to realise that it has to be paid back at some point.

I understand that the BOE uses interest rates to fight inflation. At the time 5% looked very low compared to the average 8% ish we had for decades. So surely at some point IRs will have to increase and 5% is still a low figure.

I would be interested to know what other tools could be used to fight inflation that would mean that IRs would stay at this historically low figure.

chucky

Pobby wrote: »

I have a lot to thank MSE for. We did the " financial spring clean " when times where good. Stopping not needed insurance policies, reviewing utilities ( a water meter has saved us hundreds ) and so on. This resulted in a whopping £300 plus saving per month that can be put aside.

What was all this borrowing binge about? Not just with the public but also with the government. Surely it`s pretty basic to realise that it has to be paid back at some point.

I understand that the BOE uses interest rates to fight inflation. At the time 5% looked very low compared to the average 8% ish we had for decades. So surely at some point IRs will have to increase and 5% is still a low figure.

I would be interested to know what other tools could be used to fight inflation that would mean that IRs would stay at this historically low figure.

removing the QE money from the economy could/can be the tool to tackle monetary inflation. price inflation is determined by different factors. rates can easily move back to previous levels with out going too far above this.

if it's used or not - we shall find out.

Really2

Pobby wrote: »

I would be interested to know what other tools could be used to fight inflation that would mean that IRs would stay at this historically low figure.

The problem is for the next few years the only inflation we are likely to see is oil and food and although a pain for most I do not think they will fight inflation that much if growth is going to be sluggish.

I think over the next 5 years base rates aint going to be near the averages of the last 40 years.
I think a fair few economists are predicting rates to be at lows for a fairly long time. 2008-2033 could see the average lowest base rate ever recorded.
There is still a lot of world wide slack so until that slack is picked up high inflation is unlikley to happen.

Thrugelmir

Really2 wrote: »

It would cripple just as many renters...

Rents are determined by what people can afford to pay. Not what landlords need to charge to cover their mortgages repayments. Market forces are nigh impossible to stop once momentum builds. Certainlty in the housing market where there is no controlling infuence.

Spartacus_Mills

lemonjelly wrote: »

To be fair, I've personally felt people have been on a sort pf precipice for years & it isn't something that has crept up on us.

But many of these people are a transient bunch. I was on this precipice in the very early nineties until I started to get decent salary raises and work up the career ladder. There will always be a chunk of people on a financial precipice.

I do think the prognosis is slightly more gloomy now simply because interest rates are so low. However we are miles from Armageddon.

Thrugelmir

Pete111 wrote: »

Thirdly if rates rose to say 3.5% and some banks started trying to charge 8-9% you would probably find those lenders less affected by the credit crunch (ie HSBC) stealing their custom by setting mortgages at a level more similar to 2005-7 when rates were typically 1% or so over base.

These days are gone. Not least due to the higher FSA levies to pay for the Icelandic bailout have added between .25% to .5% to the cost of borrowing money depending on the lender. As lenders pass the levies on.

Pobby

I may have got this wrong Chucky but am I right in saying that the banks are recapitalising pretty swiftly now as say they are charging 4.5% apr, they are making good profits without giving much to savers. Other lenders, e.g. credit card providers charging a good deal more.

Now suppose IRs go up a few per cent to say 4% BOE base rate, the interest charged on the existing mortgage would not have to go as high as say 8% as the lenders would, by then, be in a healthier position.

Not sure I have explained this too well, lol.

Pete111

Thrugelmir wrote: »

These days are gone. Not least due to the higher FSA levies to pay for the Icelandic bailout have added between .25% to .5% to the cost of borrowing money depending on the lender. As lenders pass the levies on.

Maybe so (time will tell) - but it doesn't mean that 4% above base will be normal either...