Five million home owners unable to afford interest rate rise

carolt

No surprises there then:

http://www.telegraph.co.uk/finance/personalfinance/7718853/Five-million-home-owners-unable-to-afford-interest-rate-rise.html

Generali

This is what's going on in Aus which is a year or 2 ahead of you guys in the interest rate raising game:

http://www.smh.com.au/business/mortgages-set-to-eat-up-the-family-budget-20100504-u74w.html

The economy's racing along here too.

Gorgeous_George

Can someone tell the torygraph that the election is over?

Many borrowers who have come to the end of their original deal have already seen their costs increase.

... and many borrowers who have come to the end of their original deal have already seen their costs decrease.

People will have a pay freeze or a pay cut. Taxes are going to rise - especially for the less well off. These will probably have as big an impact as any interest rate rises.

I think the new government will be tempted to let people suffer. Massive home repossessions will be blamed on the previous government and the public will buy it. Higher interest rates benefit the wealthy and have been the tool of choice of previous Tory governments to control inflation by stifling demand. Raising rates now will be disastrous for the economy but that may be a price worth paying to ensure the rich get richer. After all, we can't afford a brain drain (much!).

I think far fewer than the reported five million home owners would suffer if it was just mortgage rates that rose. However, if base rates rise the damage will be far more widespread. Anybody without substantial savings will be shafted.

GG

Really2

I don't get that they are saying half of all mortgage owners would not be able to afford their mortgage if rates go up?

But half of all mortgages were not in arrears in 2007 when the base rate was 5.75%?

No one is predicting it to move that much in the near future so what rate are they using 15% 20%?

Just a charity asking a new government to keep rates low if you have me (not that will have any sway)

It is clearly not based on any recent rate patterns or what rates will be like in the future.

And before anyone accuses me of having rose tinted glass, yes some may not be able to afford it if they go back over 5% base. But the article gives the idea half would not, that is not the case rates would have to jump massively to do that, and that is not on the horizon at the moment.

Really2

Oh hang on it's misleading title time.

Campbell Robb, chief executive of Shelter, said: “Some 5.4million mortgage holders haven’t even thought about how they will pay their mortgage if interest rates go up. ”

Not thinking about rates going up is not the same as not affording them, how do people form these leaps of logic?

I have not thought how I would spend £100M that does not make me a multi-millionaire!!

Really2

Generali wrote: »

The economy's racing along here too.

Would that not be the main reason for Aus inflation though? All that cash coming in from China for raw materials?

JP45

Really2 wrote: »

Oh hang on it's misleading title time.

Not thinking about rates going up is not the same as not affording them, how do people form these leaps of logic?

Indeed, yet more alarmist nonsense driven by the mutual need of the media and pressure groups to generate headlines.

To state, as the article does, that "more than five million home owners will be unable to afford a rise in interest rates and will be in danger of being evicted from their homes" is totally misleading.

It is quite clear from the news item on Shelter's web site that this is not the case:

A new survey released by Shelter today shows 29% of mortgage holders are unprepared for the increase in mortgage payments when interest rates inevitably rise.

So that's 29% of 5.4 million mortgage holders - roughly 1.5 miliion - who are unprepared for an increase in mortgage payments.

And of course unprepared does not necessarily mean that all 1.5 million mortgage holders would be unable to meet the extra costs.

So basically a misleading, headline-grabbing article based on a press release from a group (or in this case groups) seeking to influence government policy:

Shelter and the Council of Mortgage Lenders (CML) have urged the new Government to take immediate action to help thousands of people at risk of losing their homes.

In a joint letter to the new Chancellor George Osborne and new Business Secretary Vince Cable, the organisations call for a clear commitment in the first budget to extend current support measures for borrowers in most financial difficulty. The letter has also been signed by Citizens Advice and the Building Societies Association.

MRSTITTLEMOUSE

Surely it's only common sense when first buying that you calculate any future interest rate fluctuations into your budget before committing.
That way you can afford any rises and any drops in rates are a bonus.
Anyone who does'nt do this is living beyond their means if they can't afford their mortgage if rates rise and only have themselves to blame.

Generali

Really2 wrote: »

Would that not be the main reason for Aus inflation though? All that cash coming in from China for raw materials?

AIUI goods inflation is negligible, inflation is coming from services mostly. The shorter version of that is Yes.

Australia's population is similarly endebted to the UK's and whereas in the past, running out of credit would have been met with a new credit card application or sub prime MEW if it comes to it, that option isn't available for many. My guess is low interest rates were keeping those guys afloat, now they are struggling with the repayments and can't borrow more to keep the balls in the air.

Bear in mind that when people glibly talk about inflating our way out of trouble it simply won't work due to the level of debt out there.

lemonjelly

I have to admit some suprise at the aggressiveness in responses to this article.

We have seen news reports this week that insolvencies have increased again, & are projected to continue doing so. Of particular interest in those figures, was that creditors are increasingly pursuing bankruptcy as an option to recover whatever they can. This is very interesting. To me it highlights that larger numbers of owners are really struggling with their debt burden.

e have also seen that overdrafts have hit a record high. Again to me this suggests people are experiencing difficulties managing personal budgets.

I believe there is a consensus that IR's aren't expected to rise imminently, but surely it is wise to have the forethought to be aware of the implications on the nation of such IR rises were they to happen? As Generali states, this is already happening in Aus. In a global system, it is rational to assume the likelihood is it could happen here.

People tend to become accustomed to living on what they have (but then if circs change, find cutting back difficult). With mortgage payments being relatively low atm, there will be thousands out there who will make financial decisions based upon their current disposable income. If IR's do rise, they will then find themselves overstretched, & potentially struggling.

carolt

lemonjelly wrote: »

I have to admit some suprise at the aggressiveness in responses to this article.

How sweetly naive you are - pretty typical of any thread on the board that dares to suggest that everything in the garden may not be rosy for homeowners.

Perish the thought.