'A mortgage warning, take a look at the UK Interest rates' history..' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Please click 'post reply' to discuss below.
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Comments

  • I have been mourning my lost ££££s having been on a fixed rate of 4.9 for the last 3 years. I have 2 years left to go and after this blog perhaps I should think myself "lucky" that any rise won't come as such a shock :(
  • I'm on a tracker, base + 0.89, so have been piling cash into overpayments. I think that by the time interest rates go back up my amount owing will have shrunk by about 12k and hopefully that will make it substantially less painful.
  • riazmb
    riazmb Posts: 88 Forumite
    Wise words indeed Martin. Low interest rates are currently saving this country from economic meltdown, this must weigh heavily on the minds of the 'independent' BoE MPC each month, no political pressure whatsoever ;)
  • I took out my first mortgage at the end of 1988 - I don't need reminding how high mortgage rates can go!! But a useful document, thanks.
  • Sybersal
    Sybersal Posts: 28 Forumite
    We are terrified interest rates will go up. Hubbie lost his job and could n't get one near his old salary so we are £10k down. We have a 250k mortgage on a £350k house and currently paying about £1k a month - if interest rates go up it will cripple us.
    (Hubbie earns just over £44k so we will also lose child benefit) I don't have much earning capacity (maternity support worker before children on £6ph but no flexiabilty at all in shifts for working mums). My son has special needs so I do need to be around - but we don't qualify for carers allowance - but I don't want more benefits!
    We ticking over at the moment - but no savings, no pension, no extra to put away and no we don't go on holiday or eat out!
    So if the interest rate creeps up we will be up the proverbial - with I imagine thousands of others!
  • MacMickster
    MacMickster Posts: 3,626
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    Interest rates are low at the moment to save the banks from another meltdown. Many borrowers are in a negative equity situation having previously been offered ridiculous income multiples by lenders. If interest rates are increased significantly in the next couple of years then this will cause a downward spiral with an unprecedented level of defaults, house prices being driven down further, even more negative equity and then credit crunch 2 as the banks would be unable to recover amounts owing to them by repossessing the mortgaged properties.

    Higher interest rates were affordable historically as people were only allowed to borrow lower income multiples. It was the relaxation of income multiples combined with a shortage of housing which brought about the house price bubble. Banks then actively encouraged people to borrow even more of the new equity (magic money that their house made for them) to fund luxuries and people began to live lifestyles which were way beyond their means.

    If interest rates are raised significantly, then the new credit crunch will stifle the ability of businesses to start up or expand, providing the promised growth to compensate for the reduction in the public sector. For this reason I think that it is unlikely that we will see even 5% interest rates for some years to come.
    "When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
  • michaels
    michaels Posts: 27,877
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    WE were discussing on the economy board how sensitive borrowers were to rising rates and the replies thus far illustrate the range - some on fixed for who it is likely to make little difference, others on trackers who are likely to see big increases of who some like me could afford rates up to abut 11% and others who would be hit by any rise.

    I wonder what info the BoE have on this IR sensitivity when deliberating.
    I think....
  • michaels
    michaels Posts: 27,877
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    I'm not disagreeing with your analysis but there is not necessarily any link between income multiples and negative equity.
    Many borrowers are in a negative equity situation having previously been offered ridiculous income multiples by lenders.
    I think....
  • MacMickster
    MacMickster Posts: 3,626
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    edited 4 November 2010 at 5:57PM
    michaels wrote: »
    I'm not disagreeing with your analysis but there is not necessarily any link between income multiples and negative equity.

    The income multiples allowed the house price bubble to occur. Without these increased multiples prices could not have increased in the way that they did, as nobody would have been able to obtain the necessary funds. The increased multiples also allowed the previously prudent to borrow from the equity in their properties

    This house price bubble was always going to burst leading to borrowers owing more than their property was now worth.
    "When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
  • We're stuck in a 5.99% mortgage until 2012. Looked to see if it's worth coming out of the fixed rate but it would cost us £9000. We've reduced to interest only repayments as husband lost his job and took a new one on half the salary (went from 80k to 40k/annum). Will look again to see if there's any way we can nab a lower rate mortgage before they disappear! Was SO hoping to reduce our interest in 2012 so we could carry on with repayment mortgage again :(
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