What BOE interest rates will really cause financial disaster?

Batchy

With historical interest rates over the last 25 years being 7%, and more recently the norm being 4-5% and the past 18 months being 0.5%

What level would really cause pain going forward and how far do you think the BOE will go WHEN they increase?

Thrugelmir

Any rise will be painful for borrowers. Correspondingly good for depositors.

Any increase will be done in .25% increments , possibly even .125%. So will be barely noticable. Going to take some number of years to return a more normal level.

However the combination of inflation, tax rises and interest rate increases will make the majority feel financially poorer.

Providing people repay debt then they'll survive the squeeze. Those that don't will have to bear the consequences.

The austerity message has been almost overdone. Everybody should be aware of it by now.

movilogo

Different people will have pain at different levels of BoE rate (which will be inversely proportional to how they stretched themselves while taking the mortgage)

Thrugelmir

movilogo wrote: »

Different people will have pain at different levels of BoE rate (which will be inversely proportional to how they stretched themselves while taking the mortgage)

With interest rates at all time lows. There's never been a better time to repay debt.

If people choose to spend their money on other things. They shouldn't complain later on. Yet they will. As its human nature.

Vincenzo

When it will happen will depend on how far the austerity measures actually go. Based on the current economic situation and the planned cutbacks by central government I predict it will be 3-5 years before the base rate reaches 5% again.

I have voted for 5% on the poll but that assumes rates increase quickly. If as I suspect and as Thrugelmir poses, it takes much longer, I doubt any serious pain will be caused at all.

On a further note I do not think increases in the base rate will have an equal inverse effect on savers as debtors. The current margin on loans far exceeds that of recent years and to a certain extent the banks are taking advantage of the low rates (they can borrow at) currently. We often forget that this is a competitive market and banks will take the most they can and give the least they can to maximise their profits. A 1% increase in base rates does not equal a 1% increase in savings rates nor does it necessarily mean a 1% increase in loan/mortgage rates.

E.G. as a good customer of one of our high street banks I was recently offered a loan of £16,500 (unsolicited BTW) at 10% APR. That is with a 0.5% base rate. If base rates rise to 6%, does that mean this loan will be 16% APR? I would say definitely not since the rise in base rates will conincide with an increase in the availability of lending.

chucky

there are 11,000,000 mortgages in the UK.

50% approx are on SVR on tracker so let's say 5,500,000.

8% of property was in negative equity last summer (let's take that number for arguments sake) - that's 440,000 from 5,500,000

unemployment is around 9% from the 440,000

which would be about 39,600 mortgages may be at risk from increasing rates - that's 0.36% of all mortgages and 0.16% of all properties in the UK. that's not a huge amount....

that obviously doesn't include part-time workers and assuming people don't have savings or redundancy payments etc... etc...

Strings

It is the LIBOR and lending rates which are the most critical items here, not the base rate

Batchy

Strings wrote: »

It is the LIBOR and lending rates which are the most critical items here, not the base rate

I appreciate what you saying but I do not know a mortgage product which tracks LIBOR, only only that track BOE Base rate, or Banks own base rate (like Barclays Bank Base Rate. BBBR)

Libor is a whole different discussion IMO

chucky

Batchy wrote: »

I appreciate what you saying but I do not know a mortgage product which tracks LIBOR, only only that track BOE Base rate, or Banks own base rate (like Barclays Bank Base Rate. BBBR)

Libor is a whole different discussion IMO

it's not really - SVR's are 'usually' derived from what the banks lend and borrow at Libor interbank rates.

trackers generally go off the BOE base rate

fixed rates are generally derived from purchased or borrowed money from the swaps market which is usually combined Libors anyway.

SimbaSimon

chucky wrote: »

it's not really - SVR's are 'usually' derived from what the banks lend and borrow at Libor interbank rates.

trackers generally go off the BOE base rate

fixed rates are generally derived from purchased or borrowed money from the swaps market which is usually combined Libors anyway.

But then theres SVR rates that track the BOE base rate, e.g. all the Nationwide customers who are enjoying low rates right now, me included.

However, I feel this poll is irrelevant as saying what interest rate wil cause pain means nothing a timeline, i.e. 3% may hurt this year, but in 2012 it won't. Or are we just talking immediately? In which case none of it matters as the BOE rate is going nowhere fast.

Old_Slaphead

Thrugelmir wrote: »

With interest rates at all time lows. There's never been a better time to repay debt.

Surely the opposite is true - unless you mean 'easier' instead of 'better'