People BEWARE 6% IR next year looking a real possibility

Mrs_Optimist

In our area reposessions have already rocketed and there is an influx of rental roperties that cannot be let - the rent is too high. What are the BTL brigade going to do if they can't rent the property out? They will have to sell, and this has caused an influx of new property on the market which is just not selling - in our area anyway. Every week our local property pages show the same houses with reduced prices and they do not sell. I suspect that people have managed mortgage payments by putting everyday living expenses on loans and credit cards, but it is starting to catch up now and so more and more people are declaring themselves bankrupt and/or having their homes reposesed. I too long for a house crash - we bought at a good time (early 90s) but scrimped and saved every penny for our deposit and have not dipped into the equity so if prices do crash we will not have negative equity.

sarah_elton

F_T_Buyer wrote:

I think people need to think seriously if they can afford 6% interest rates. I personally don't think they will get that high, but it is a serious possibility.

If you can't afford rates at 6% (i.e. mortgage rates at 7% ish) you are borrowing too much. Plain and simple.

Despite the repetitiveness of this thread, which I agree with, F_T_Buyer's point is a very valid one that needs emphasising to buyers.

I had plenty of advice given to me on here when I bought as I got a 100% mortgage, but with a salary bump since then I can afford my mortgage up to a mortgage rate of 9% currently (I'm fixed at 4.99% till Jan 2008), and having just moved into a new career should be able to increase my income more in 3 years or so.

Anyone buying should work out their repayments at increasing rates (calculator here - http://money.guardian.co.uk/calculator/form/0,,603156,00.html), if you know you can afford it you don't need to stress every time the BoE meets.

natwill_3

Does anyone think they will go higher than 6% though?...just interested...I could manage 9% but at 12% I would be stretched too far loking at the mortgage calculators

PoorDave

Zammo wrote:

It's also worthwhile pointing out that the long term average interest rates in this country are around 7%. We have been in an artificially low IR environment since 2000 when the US lowered them to 1% in order to stave off a recession. They've been gradually rising ever since and I expect them to return to their long term norm within the next year or so.

There are going to be a lot of people in some serious difficulties when there mortgage rates go up by even a percentage point.

The word artificial seems to get used a lot in talking about low interest rates.

The situation you talk about has nothing artificial about it, i don't think. It's just the way the world is

mi-key

I think a raise of another 0.25% by the end of the year is very probable, if this doesnt slow down the interest rates another 0.5% over the next 6 months wouldnt surprise me at all. From an interview with Mervyn King in the paper last week it seems he is very concerned about the interest rates being above 2% and showing no signs of slowing, and seems pretty determined to do whatever it takes to get it back down again.

The problem for house buyers though is the knee jerk reaction of some of the lenders to the rises, Cheltenham and Gloucester ( Lloyds TSB ) have put up their rates on fixed price mortgages to stupid levels already - seems like a lot of the companies are trying to discourage people taking out long term fixed rate deals and go for trackers instead - which conveniently protect the BS and banks against interest rate rises in the future !

sarah_elton

mi-key wrote:

which conveniently protect the BS and banks against interest rate rises in the future !

To be fair, that's kind of the way they make money.

roswell

when dvd players etc became cheaper interest rates came down, if you notice the price of general houseold goods and shopping is increasing again eg for the last 6 months 12 cans of dog food was £4.00 this month its £5.88 and this isnt the only item iv seen with increased prices, fruit , coffee and many other everyday items are increasing in price, if this inflation is happend in the consumer market it must affect the money market and larger goods market.

just my thoughts discount them if you want but I think the long line of cheap money is in its final stages. As many said when interest rates started coming down "Now is the time to pay back debt" it seems the next few years will show those that listened and those that didnt the differance being reposetion / not, bankrupcy / not

lynzpower

meanmachine wrote:

Have you noticed the price of rocket (salad) has rocketed?

No seriously...when Tesco starts to put prices up, even with their stranglehold on the market, you can be sure that something's up.

I must admit I noticed tescos has put thier prices up almost accross the board today

meanmachine_2

PoorDave wrote:

The word artificial seems to get used a lot in talking about low interest rates.

The situation you talk about has nothing artificial about it, i don't think. It's just the way the world is

That's very telling logic.

So low interest rates aren't temporary, they're permanent. They have to be otherwise very high house prices are temporary - and we all know that's nonsense.

Hmmm. Something doesn't quite add up there.

I've been reading lots of articles recently about how Chinese goods are starting to rise in price - by 5-10%.

That doesn't sound too bad, until you realise that falling import prices have been off-setting massive domestic inflation.

Falling Chinese prices ARE temporary, otherwise they'd hit zero before long.

Let's be honest, when you can buy a school uniform for a fiver, that's a good thing. But to keep inflation down, that ultra low price has to keep falling - and that's impossible.

free4440273

there was an excellent article by the always readable and astute Merryn Somerset Webb in the sunday times a couple of weeks ago. unfortunately, i do not have the web link (i read the paper version), but she thinks inflation is definitely on the increase (despite what the BofE would have us believe); she also thinks the only credible way to nip it in the bud is via more interest rate rises. she did not seem to believe that the .25 per cent increase was the end of matters...i am inclined to share her belief; she talks a lot of sense. it seems to me that the .25 rate rise was the BofE realizing that they should have in fact raised rates far earlier (vis-a-vis the federal reserve and the bank of Australia, for example);this is what caught the markets 'off-guard' - not that rates should not have risen (they know they should have), but 'why now?', too little too late...