MSE Ness: Home owners told to prepare for 5% base rate

Paulgonnabedebtfree

As a self-employed person with no dependents, I do have a bit more financial flexibility than most.
I can switch off everything (but the TV and freezer) and watch TV in my overcoat to save putting on the heating - if I really had to.
I don't eat meat or fish so I can boil a load of veg and freeze it in portion sized containers - if I really have to.
I can live on bargain priced baked beans and freeze end of life bread - if I really have to.
I can avoid taking a holiday at all (not that I go for expensive ones anyway) - if I really have to.

And each month that goes by the minimum repayments on my debts drop a few more pounds (though I do repay more when I can).
Each year that goes by the compulsory minimum payments on my unsecured debts drop by a bit over the equivalent of 1% on my mortgage.
Slowly, slowly, I am emerging from the !!!!!! pit of my own making.

However, those are the things I have some control over. The things that really concern me are the possible effects of interest rate rises on my customers and whether they will cancel or reduce my services.

What I don't understand is that when I was on a fixed rate of 5.45% (until October 2008), although I was struggling, I was just about squeezing by each month. I owed more money then than I do now as well. At that time I just completely shut down my spending on EVERYTHING that I could. No newspapers even. I can revisit those times if I have to. I have loosened off the reins a bit in the past year - though still practice frugality. I have to bear in mind that the domestic fuel has increased and my diesel bill for my business is rather higher too.

So, I am going to take the warnings on board and return to the dark side .
Once Xmas is totally over and my friend's birthday is gone (mid January), I will be re-instating the things that got me through before.
No non-essential spending at all (not even chocolate ).

Now if such a warning is having that effect on me, it's reasonable to assume that quite a few others are similarly affected. If enough are affected this way, much of the economy will be squeezed some more.
I believe there is some very nasty medicine in the offing and we haven't seen too much yet.

All together now
"I - I will survive........................"

Got to have a sense of humour. No point getting miserable about stuff over which I have no control.

Paulgonnabedebtfree

nzseries1 wrote: »

I would like you to point out one single post where this has happened. I personally said it's good news because, for me, I will get a higher return on my savings, and also sterling may strengthen, which is good since I send money back to New Zealand from time to time.

At no point did I say I was gleeful because of others' (sic) being unable to pay their mortgage.

With any major budget decision there are going to be winners and losers. It's sad that some people will struggle to pay their mortgage. However, it is my opinion that people should be armed with all the facts before making such a large decision to purchase. It's clear that rates were going to go back up sometime. If a purchaser who was close to the edge did not know this, then you can't blame the rest of us for that person being uneducated.

As someone's signature states on this board: "It [a mortgage] is not like buying an iPod, so stop treating it like one".

I don't see anyone being particularly gleeful about others losing either. Nothing wrong with being happier about getting a fairer return on savings though.
I do question about interest rates being "artificially" low though. The goal with interest rates generally is to keep them at levels that prevent the economy dropping off a cliff or, at the other end, overheating so much that it becomes responsible for global warming all on its own. 0.5% has been deemed the correct rate for a while in order to try to keep the economy bumping along. If it were the case that 90% of the population rented and only 10% were buyers, I think we would be seeing a different base rate. It's not just about mortgage rates,house prices though. It's about maintaining the currency at an international level that not to heinous for imports and exports. I sometimes feel that we don't make enough in this country any more and that the only way we ever will is if the currency depletes further. To counteract the inflation on imports, more self sustainability would be needed to reduce our dependence them. Of course there are many pros and cons in ANY monetary policy and I suspect it will be quite a few years before conditions are right for some reasonable balance.
So I don't see the current interest rates as being artificial but I would like to qualify that. If you bear in mind that all money is, is a token that may be exchanged for goods and services, then the whole system that we live in is artificial. Money is only worth anything because there are things for which it may be exchanged. The value attached to it is highly subjective.
The extreme analogy is about the guy in the desert with a million pounds in his rucksack. He needs two pints of water to make it to safety. The bedouin asks for half a million pounds per pint. Sounds like a bargain .

hermanmunster_3

just paid off mortgage - when I started out on this lark 10% sounded great (was paying about 13%) - so 5% still not bad....

de1amo

As soon as the uk realises that property is not an investment , its a place to live and enjoy. The whole credit crisis has been due to lenders issuing credit on ' perceived' values all over the western world. i believe the wound is fatal and it will lead us to a new world order where we dance to another tune. Homes will be the reseve of the lucky few and renting will become the norm--the uk economy will sink as the emerging countries thrive after a lifetime of being 'under-dog' the Chinese will not only control the USA economy as they virtually do now but the rest of europe and the uk--there will be an equalling out of wealth and it wont make us better off!--interest rates are just weapons to redress this order-

speedbird1973

Probably worth pointing out that the article doesn't put any time scales on the increase. So it's an article that doesn't nothing apart from state the obvious!!

I think the markets are betting on 1.5% base rate at the end of 2012 (although I can't remember where i read it.. could be wrong!!)

de1amo

The markets never saw lehman brother's coming and even when it happened they said things would be back to normal in months. İ tend to give little value to gamblers because they are driven by greed!--so how can they be credited to know where interest rates will be a the end of 2012--i think by the end of January when everything is flat there will be another set of 'thoughts' on where interest rates are going in the uk(or not because they cant go lower!) but the world markets will actionally decide the reality!

Berger

Hmmm...I know I've been exceptionally lucky to have interest rates so low - I moved onto a tracker 3 years ago because I could read rates were likely to drop (despite the banks / building societies desperately trying to get me to take a fixed - I wonder why...?), but never dreamt they would fall so low, for so long. My tracker rate is 0.34%. Unfortunately, Nationwide, unlike some, had a 'floor', which they eventually imposed at 2%, so I haven't been having negligible payments, far from it, but I have been able to overpay by the maximum non-penalised amount - £500 a month. Hopefully this will give us a lower LTV when we look to move house next year.

Rates of 5% plus will clearly make us worse off, but at least we've made the most of the low rates. Our problem will be that it's FTBs who will likely want our house (as we were), and where will they get a mortgage to do it?!

Also I'm wondering, given this news, should I look to port my existing .34% tracker to the new house for the outstanding amount (if they let me), and fix the extra amount, or dump it all in and go for the best fixed rate at that time. I'm not convinced how quickly the rates will rise, clearly they would have to go above 2.5% for me to be worse off. Any thoughts, MSE whizzkids?

For now, I'm not going to jump off this mortgage, but it's a question of monitoring closely.

de1amo

i think what matters more is the multiples of your salary the new mortgage on a more expensive home will be.--i have about 75pc ltv but the bulk of my earnings and equity is abroad and i couldnt remortgage my 55k--it is about 6 times my uk income but no one would deal!

Bloomberg

TonyMMM wrote: »

The sooner the better ... have been kept artificially low for far too long.

According to recent figures there are seven million households who cannot afford even a small rate rise. Too many people have been frittering away the money that they have left over as a result of cheaper mortgages. Historically the current rate is ridiculously low but many people are behaving as if it is fixed for good and for all.

Like it or not we are heading for a massive house price crash. The moment people in this country started looking at a house as an investment rather than a dwelling a huge time bomb started ticking. The CBI are saying that within two years the base rate could hit SEVEN PERCENT.

Needhelpsaving

Why am I suddenly glad that I fixed???