Interest rate rises: FTB panic or genuine concern

FTB-FTW

Hi all

I'm sure I'm not the only one who is fretting over what happens when rates invariably rise again, but as a mortgage newbie I'm losing quite a lot of sleep over this (literally) and would appreciate some advice from the experienced.

At present, my OH and I are not stretching ourselves on our mortgage repayments. In fact, my own income wasn't even taken into account by the lender on the grounds that his was sufficient. Our repayments are just a fraction over what we have comfortably been paying in rent for many years.

However, we plan to start a family in the next 2-3 years, which is when things could get interesting. I won't be earning for a time, and will only get MA, which would only just cover my half of the mortgage at present but certainly won't do when rates rise. I'm pretty aware that they will have risen by this stage.

On the positive side, we are currently in a position to over-pay, and hope to have got our total amount borrowed down by at least 12-15% in the next two years. I guess I'd like to know from someone in a similar situation what other steps we could be taking now, other than (obviously) saving. Since many people buy their first home at this point in their lives, I can't believe we're alone.

So far, I have used a calculator on money made clear dot org dot uk, which our lender recommended and I find it to be very useful. However, I'm not sure I'm using it right: am I right in thinking I should be putting the (estimated) remaining borrowed amount into the box at the top before 'inflating' the value by 1,2,3,4 or 5%?

Also, I keep hearing stories about how the rate has in the past risen as high as 15%. Are these scare stories, or something we should actually prepare for, and if so, how???

I think I am just struggling to get my head around all this and how the possible rises actually seem to make it impossible to know what you can 'afford'. We were very wary about not borrowing more than we could afford, but I'm wondering how possible it is to even estimate at real affordability in the current climate.

Thanks...

EDIT TO ADD: didn't mean to imply with my title that this isn't something that affects all of us here, of course it is. But I'm less aware of ways of coping than others may be.

Running_Horse

If I was a FTB with historically low interest rates I would be looking to fix for as long as possible, especially if it was making me lose sleep. Please don't let this ruin what should be the most exciting time of your life. You are right to be cautious in your thinking and not overstretch, but if you followed every "what if" to its logical conclusion, nobody would ever take out a mortgage or provide their future children with a lovely secure home.

FTB-FTW

Thanks running horse. I realise now that our mistake was going for a 2-year, and am wondering if there is anything we can do about this.

Is is unusual for a mortgage lender to re-calculate your illustration and offer again if you decide you actually want a different fix? If it's even possible to do this I think that's what we should probably do. If not, I'm not really sure what to do. If we retract our offer we will have lost some money and a lot of time.

Also, I am conscious that even if we did then go for a cheaper (and possibly too small) property instead we would still be subject to similar issues a couple of years down the line, so it would probably be a case of giving up on buying altogether which does seem like an over-reaction...

lee636

In the worst case scenario you could see how the market is with a few months to go on your deal and decide that if the rates are too high; sell your house, lock the money into a high interest a/c and possibly rent again.

We are FTB too, locking in for 3 years at a half decent rate but too are worried if the rates went up, but that is 3 years away now, time to enjoy this experience, at least for 2 years. Then we can look at the market and sell up if needs be ready for the end of our deal. Its our first place so is never meant to be your dream home, your only home. The worst case for us is negative equity but the area and property should stay very stable for us, maybe even go up in value, then all we worry about is paying the penalty fee which is around £6k & EA fees.

Everyone is worried but step back abit, think logically and try to remain calm, im sure you'll make the right choice!

poppysarah

Scare yourself. Look at the bbc mortgage calculator. They mention 12%!

ILW

poppysarah wrote: »

Scare yourself. Look at the bbc mortgage calculator. They mention 12%!

My mortgage went up to 12% 1 year after I took it out in 1990. Was a bit of a struggle, but got through it.

Bullfighter

You should also remember that in the previous mini-recession in the late 80s/90s rates often went up twice in one day. There is also no rule that says they can't go up by more than 0.5% or 1% at a time.

As for

In the worst case scenario you could see how the market is with a few months to go on your deal and decide that if the rates are too high; sell your house, lock the money into a high interest a/c and possibly rent again.

Sure, if the price continually increases or stays static in the face of rising interest rates. If not, you may be trapped in negative equity.

I'm not against buying a house, but unless you are confident that you have enough financial stability to weather the coming storm (ie buying with cash) then you are making a massive RISKY bet on the economy and your future financial position.

Maybe the whole global crisis will just magically disappear and house prices will carry on their 10% pa increases (until in they exchange hands for billions in a few decades), however I am seeing no signs that this will happen.

Good luck.

Bullfighter

ILW wrote: »

My mortgage went up to 12% 1 year after I took it out in 1990. Was a bit of a struggle, but got through it.

What was your LTV in 1990?

FTB-FTW

Poppysarah> My OH has already scared the whatsit out of me by mentioning 15% so it can't be any worse than what I've already thought about! Seriously though, if it did go up to 15% wouldn't that be most homeowners completely shafted? We're in the relatively good position of being able to pay off up to a third of our loan in 2 years, and would still be ruined if that happened and we couldn't sell.

Lee636> it's easy to forget that just selling up is an option sometimes! I guess my fear is that in the case of a massive rates rise, everyone would try and do the same thing at once, but like you say, there's no point doing anything if you're going to worry about every last risk. For me, my worry about this stuff is so great that I can't tell if I'm being rational or not, hence this post!

poppysarah

Oh yes a lot would.
But only because we've had the sickest economy for years but have hidden it behind people getting rich off their houses. (debt = wealth under Gordonomics)

To have people being repo'd at the moment with lowest rates ever is probably only the tip of the iceburg of mess.

Do you have an extra few £k spare that you could live on for 6 months if you lost your jobs?/need a new boiler/etc

If rent > mortgage and the property isn't going to fall down then generally it's an ok idea.

Having cold feet is a sensible reaction to the biggets financial committment you're going to make.

FTB-FTW

poppysarah wrote: »

Do you have an extra few £k spare that you could live on for 6 months if you lost your jobs?/need a new boiler/etc

We do at the moment, yes, although we are still between offer and exchange so with the usual caveats about unpredictability of moving costs apply. We've budgeted to have a fair bit left over, but were hoping to put this into overpayments to effectively increase our 'deposit' once we were sure we'd come through the move OK.

Having cold feet is a sensible reaction to the biggets financial committment you're going to make.

*nod* I'd agree that cold feet is sensible, but not sure if sweaty palms and cold SWEATS are a very good sign. It probably just indicates that I'm a bit of a mess about it all