Interest rate rises: FTB panic or genuine concern

tyllwyd

FTB-FTW wrote: »

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 wouldn't convince yourself that rates will go as high as 15%. You are thinking about Black Wednesday
http://en.wikipedia.org/wiki/Black_Wednesday
- I was a student then, but even I remember all the fuss on the news at the time.

But the economic situation now is very different to what it was then, and politically it would be a disaster for the Bank of England base rate to suddently shoot up from 0.5% to 12% in a short space of time, so in my (humble and very uninformed) opinion I can't see that happening. But I do remember that we stretched ourselves to buy our second house in the late 1990s and it seemed that every month another letter came in the post putting up the mortgage by another 0.25%. It wasn't easy, but we had to budget hard to keep on top of things.

My biggest advice would be whatever you do avoid running up debts in addition to the mortgage - if you can save/overpay, great, but if you can't then at least if you don't have big credit card debts or secured loans to pay off, then you've got a decent chance of coping if the interest rates go up.


Edited to say - there is a cool interest rate graph here. But of course mortgage interest rates aren't following Bank of England rates all that closely at the moment
http://www.propertyinvestmentproject.co.uk/property-statistics/interestrates.php

Also edited to say - have you tried putting your figures into a mortgage amortization (or amortisation) calendar. That shows how the balance between interest & capital changes during the time of your mortgage, and shows how the capital outstanding decreases over time.

ILW

Bullfighter wrote: »

What was your LTV in 1990?

When I bought 90%, but then prices crashed by about 25%. I was in negative equity for the best part of 10 years.
Happy days.

FTB-FTW

tyllwyd> Loving the graphs - thank you.

We are probably in an OK position - 20% deposit and we are planning to overpay; don't have credit card debts or loans. It's still scary though - I'm self employed so have the additional worry of contracts disappearing into thin air. I do wonder if maybe I'll be fine with the risks once I've taken the plunge.

Do you happen to know if it is possible to request a different fix after getting your mortgage offer? I am thinking very seriously about this now.

tyllwyd

FTB-FTW wrote: »

Do you happen to know if it is possible to request a different fix after getting your mortgage offer? I am thinking very seriously about this now.

Best advice is probably to phone your mortgage company and ask if it is possible. Have you paid a reservation fee? I'd have guessed you might lose that if you change now.

neas

We just bought our property... and fixed for 5 years at 3.99%. Sure we could have got a 2.5% tracker or 2% etc etc... but do i think interest rates will rise above 4% after 6 months? maybe not... after 1 year? more likely? 2 years? you betya 3 years? still high 4 years? still higher 5 years ? Still higher

Basically i've fixed down to ensure i get a nice rate, comfortable to pay off and we are going to overpay double what we should be paying to get balance owed down to such a point that if IRs did double we'd still only be paying a hundred quid more than we would now.

Your prob in a good position having identified the risk that IR would rise after your 2 year point and screw you. Nobody has a crystal ball its about paying a bit more to lower the risk and ensure you can start family and have comfortable life together not worrying about repossession.

I do commend you for thinking though.. alot of FTBers and even property owners i know tell me of their 'great' 2 year fix or their '2%+BOE tracker' and i lose a little something of myself inside every time. They usually are (unlike you) borrowing to the hilt and saying 'wow look 200k only costs 600 quid a month to borrow'... but if interest rates ent up to 8% they'd be screwed over. basically its the biggest financial decision in your life, its a long time you have the mortgage and its expensive to sell.. so you'd have thought they'd take the time to truly understand and appreciate all the terms and options for them... but you'd be suprised.

I tried to point this out to the 2% tracker guy but he said 'when they rise i will fix it then'.... what he dont realise that the 4% fix is available now... if IR rise 1.5% then the fix probably goes to a 6% fix... so he didnt win anyways.

LittleMissAspie

I think you are panicking unnecessarily. You have a 20% deposit, your loan is based on just your partner's income and your mortgage will be the same as your rent. You aren't stretched at all, you are in a good position. Can you afford your repayments on one income at 8%? If so then don't worry.

I'm also between offer and exchange, we've fixed for 2 years. It was a choice of 2 or 3 years from our bank and we worked out that rates would have to be more than 6.something% in the third year to be better off on the 3-year rate. So we've taken that chance. Like neas we are overpaying so that when the rate does go up, our actual repayment won't.

Think logically - get into arrears with your rent and you get evicted, get into arrears with your mortgage and you get repossessed. End result is the same but you also have a possibility of going interest only or taking a payment break, so actually you have two further safety nets with a mortgage.

SusieT

One thing to look at is what the long term fixed rates are, if the banks are expecting big rises they will be building them into their offers and the long term fixes will be at a fairly high rate.
I took out a longer term fixed rate a few years ago on my house and am paying for it now as if I was on the SVR I would be paying £150 (approx) a month less!!
If you are able to overpay on the mortgage and will be living in a nice house thats yours look at longer term fixes but don't panic just plan now, save where you can but still have a life! You are looking at a long term purchase and hopefully a long happy time in the new home.

madmish00

To be honest we are looking to move and will be taking a 2 year fixed for our additional borrowing. Looking at predictions (although we know they are not always very reliable) it is being suggested that rates will stay as they are until the second quarter of next year and be at approximately 2% by the end of 2012. At this stage they are likely to increase although I doubt we will see the 15% levels you mention.

If these predictions are correct we will be coming to the end of our 2 year fixed with rates at 2% and then will look to remortgage onto a longer term fixed rate to weather out the further increases. If we were to take a 5 year rate now, by the time that came to an end we would probably be coming off the fixed rate and onto rates of 6% plus. Much harder then to get a cheap fixed rate deal.

But as I say nobody can predict these things accurately and you need to consider your own circumstances and decide how much of an increase in rates you can afford before you start to struggle to repay.

Turnbull2000

The BOE base rate won't be going very far any time soon. They are very concious that any rise may be detrimental to property values, so expect rates to remain ultra-low for at least the next five years. The downside if this is that inflation will likely erode your earnings, so make you have spare capacity for this rather than rate hikes.

myhouse_2

The fact that you are planning for this things is a good sign that you'll be ok. It's not realistic for people to be able to plan for 12-15%. Even if it were to hit that amount, it would likely only be for a short term (1-6months).
After your 2 year ends, consider a fixed and then you can guarantee that you can afford the mortgage (IR are unlikely to go from nearly 0 up to 15% in 2 years).
Overpay on your mortgage now if your agreement allows you to do so, and make sure you keep some extra savings in case of disaster (and that can be high interest rates, losing a job or a million other things which might or might not happen).
Prepare for the worst by all means, but don't worry too much about it.