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

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  • I do have some dread about the rates going up too soon and am well aware that the current rates are far from normal. Cheers for the reminder though Martin.
    My mortgage is a lifelong tracker - at 2% above the quarterly LIBOR. Plenty of room for me to get into deep doodoo if rates climb. I'm using the low rates to reduce my unsecured debts in the hope that I will have a bit of room for maneouvre when rates climb again. It's not just my own mortgage though. My customers have mortgages too.
    I do have contingency plans such as squeezing my spending even tighter, possibly letting out my bedroom and using my current office/guest bedroom to sleep in. Beyond that there's not a lot more I can do. Renting the room out would take care of the equivalent of about 3.5% on the mortgage rate. Not having a holiday would save a bit too (not that I'm extravagant). I suppose that defaulting on unsecured debts would be an option if it was the only way to avoid being evicted.
    I do have the capacity to earn more too but if the economy spirals downward, that option could be removed.
    God bless beans on toast :D .
  • It doesn't seem to matter what level the BOE sets the interest rate, the "deals" provided by lenders seems to ensure that the rate charged to new mortgage customers is always around the 4-6% level. When interest rates were over 5%, there were lots of deals at Base Rate-1%. As the base rate dropped, the deals changed accordingly. So, now the base rate is 0.5%, all the deals available to the average borrower are around Base Rate+4%. I expect this is because they know that people won't take out new mortgages at higher rates than 6%, but their business model requires them to make a return of at least 4%. Consequently, this is where they set their lending level. But, unless you are on a tracker or an SVR, it seems to me that you won't be getting any benefit from the currently low rate. Some lenders (Nationwide for example) have now even changed their rules so that you can NEVER revert to the Base Rate, even if your "deal" period ends. Based on this trend, I would expect that, when the base rate starts to rise again, lenders will just change their deals to ensure that new mortgage customers take out borrowing at the 4-6% level.
  • An interesting theory, but that only looks at the last 5-10 years. As quite a few people here have said, go back to 1980 and they were paying 10-15%.
    Personally, I'm one of the ones stuck on a 5 year fixed rate of 6% until 2012, so I doubt the rates will rise high enough to affect me. When rates eventually start going up, they're going to have to go slowly otherwise we really will have mass repossessions. With the economy so fragile, I can't possibly see a jump back to 5% in just 12-18 months.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    First Anniversary First Post Combo Breaker
    Sybersal wrote: »
    (Hubbie earns just over £44k so we will also lose child benefit)

    I note you say no pension, but the changes to child benefit, and the promised removal of means testing, mean that it might be worth you looking seriously at this. Contributions to a pension could pull your husband back out of higher rate tax, which will mean you get child benefit, and you'll have something going into a pension with higher rate tax relief. Note that this only works if means testing does go and stays gone as otherwise a small pension just disappears as you lose pension top up.

    It's worth you asking about this in other forums here, and perhaps even getting professional advice. And don't let pensions scare you - they are far easier, and less "opaque" than they used to be, and less of your money gets eaten as fees, at least if you do it right. Advice hereabouts seems to be that Cavendishonline are the cheapest and easiest, but it does depend on your circumstances.

    BTW, it's also worth asking if your husband's employers have a pension "salary sacrifice" scheme, or are looking to set one up, and these have NI advantages.

    Ian
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • You cannot say we don't live in interesting times! There are two competing forces at work here. First you have the bond market whose enemy is inflation. So all those pension funds that are paying out annuities don't want inflation to creep up -- to erode the value of bonds. They will put pressure on the BoE to raise interest rates to kerb inflation.

    Then you have the banks who are scared that if interest rates rise there will be severe problems with their customers not being able to service their mortgages. With property prices at stupid levels -- but thankfully beginning to fall -- the banks will be unable to repossess their properties and then sell them to realise their assets (houses are simply not worth what current asking values suggest they are). So it's in the bank's interest to keep the base rate low, irrespective of the value of inflation. Indeed I would even say that higher inflation holds the promise of reducing the real value of the debts as everyone asks for higher wages and nominal value of property drops in real terms.

    So the big question is who will win? It is very difficult to see rates being kept so low for too long; inflation is already creeping up and there is only so far you can disguise it by changing the way it is measured before it becomes obvious to all.

    The only real advice I would suggest is to do what you can to overpay your mortgage -- at any cost. Any overpayment will have a large effect over the longer term (akin to a butterfly's wing generating a storm). You'll not get as good a chance as this to attack your mortgage so --

    OVERPAY NOW!!!

    Thank you and good night.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    First Anniversary First Post Combo Breaker
    PParka wrote: »
    one of the first things to do is think what would the repayments be if the base rate went back up to 5% or higher.

    Agreed 100%. We're currently looking to buy a holiday home (with a view to renting it out as a serious business) and all my calculations assume a mortgage rate of 5% rather than the sub-3% we're currently being quoted. Maybe I need to open the spreadsheet and increase that to 6% ...

    Ian
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • PhylPho
    PhylPho Posts: 1,443 Forumite
    First Anniversary First Post
    The oh-so-clever financial instruments that led to the explosion of loose money and subsequent melt-down of the banking system were devised by a bunch of alleged geniuses who believed the recent past was a dependable guide to future outcomes.

    The fallacy was obvious then and remains so now: just because 200 people walked safely across a busy road last week doesn't mean you won't get hit by a truck tomorrow when attempting the same thing.

    Martin's piece is of interest but as others have said, prophecy is one thing, prudence, another. No mortgage debt is a comfortably unvarying fixture.
  • I just love this kinda talk. Cheers for the doom and gloom story Martin and team. I believe its the stuff of fantasy. We will not see the days of 15% interest rates again.

    The world economy is a mess. America is masssively in debt. More than ever in its history and its happy to be there. It just prints more money...raising inflation all the time.

    The billions it has borrowed will be eroded by inflation. Ask your parents how much their first home was. My parents paid around 3k for a house that is now worth roughly 300k. This is because of inflation.

    The billions of today will be so much smaller in 20 years time. Rough ouit the storm of today and you will wonder what all this talk is about.

    I see interest getting no higher than 5% in the next 10 years at most. Can you imagine what would happen if it hit 8%. How many would be homeless. As inflation rises your current mortgages will not seem that high in 10 years time.
  • PhylPho
    PhylPho Posts: 1,443 Forumite
    First Anniversary First Post
    As inflation rises your current mortgages will not seem that high in 10 years time.

    A lot has altered since the era whose received wisdom you seem to be drawing upon.

    Those golden days of 1960s / 1970s full employment (I remember 'em well) when everyone said, ah, your mortgage might seem expensive now, but just think how much it will drop in proportion to income as your wage goes up every passing year. . .

    . . . Those days are over.

    Unlike yesteryear, inflation is a barely sustainable argument for any payrise claim in either the public or private sectors, because unlike yesterday, today's employers can and do (and will so continue to) cut their losses by cutting the number of employees. If 10,000 people are going to get a lot more money, then 8,000 had better be more productive and the other 2,000 clear off.

    There are no jobs for life now. There is no security of employment now that thousands of jobs can be punted offshore to locations with lower labor / materials costs bases. And there is absolutely no certainty at all that your income will rise by the year in such a way as to make your mortgage obligation seem significantly smaller by the year.
  • temporary1
    temporary1 Posts: 37 Forumite
    edited 12 November 2010 at 2:14AM
    I'm fed up with hearing all the whingers, whining on about losing their homes when interest rates return to their usual levels.

    If you're (going to be) unable to repay your mortgage, then you're part of the reason/problem that has/is causing all of the rest of us to have to make alot of temporary sacrifices.

    Simply accept that meticulously planned lives and lifestyles are easily subject to change, and that you too can change, adapt and simply downsize, paring back to the basic necessities of existance and cutting out all the unnecessary costs and services that many other, less consumer-envy-based, cultures seem to manage without.

    For example; I bought a 4 bedroom house in 1995 and spent the next 13 years working extra and saving ferociously, and having almost no social life, to pay it off. In 2008 as the "mortgagee-moron recession" hit and it lost a quarter of its value overnight, I quickly sold it and bought a two bedroom house almost outright and gave up work.

    With the excess difference, I sensibly thought that the historically average b.o.e. interest rates of between 4-5% would give me an income of around a thousand pounds a month which would in turn give me a modest and affordable lifestyle, and mean that, now in my mature 30's, I wouldn't have to work again.

    But so much for being brought up with a strong respect for money, saving and sensible asset planning;- because of the rest of the leisurely, life-enjoying, ill-conceived budgetters, and blind/ignorant optimists having overborrowed with the banks - "because they allowed us to" (aaah, diddums!) - the best savings interest rates have plummeted from a reasonable 6% to a below inflationary rate of between 2% and 3% and, on this halved income, I am having to consider putting another, more deserving and needy than I, onto unemployment, just so that I can maintain my own modest, un-demanding and un-greedy lifestyle path.

    So, from all the financially careful people that have sacrificed life's niceties and saved year on year in order to be financially self-sufficient - thank you for screwing us all up.

    Now grow up, grow a pair, and accept some of the reponsibility - and possibility - that you might have to rearrange, and even reduce (shock!), your own little perfect existances too.

    Bitter? - too right I am.

    To make up for the last 2 years over-extenuated labour govt fear-inducing panic, 10% base rates can't come soon enough.
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