Interest Rate Rise Warning for 10m Households

Graham_Devon

UK households are more at risk of an interest rate shock than at any time on record, with nine in every 10 mortgages now on variable rate deals, according to analysis by Legal & General Investment Management (LGIM).

http://www.telegraph.co.uk/finance/economics/8371411/Interest-rate-rise-warning-for-10m-families.html

You can almost smell the fear in that article!

"It would mean the kind of monetary tightening we had pre-crisis and we don't feel the economy is resilient enough to withstand that," Tim Drayson, LGIM economist, said. "If banks pass on any rate rises, which seems likely given pressure to rebuild [their] capital levels, many homeowners will quickly experience a meaningful impact on their cashflows."

A 2 percentage point rate rise would add about £170 a month to the cost of a £100,000, 25-year mortgage – or £2,000 a year – by increasing the average mortgage rate from 3.25pc to 5.25pc.

HAMISH_MCTAVISH

Graham_Devon wrote: »

You can almost smell the fear in that article!

Eh?

Looks like a well balanced article, that says exactly what ,any of us on here have been saying for some time.

LGIM's research suggested that the economy is not yet strong enough to withstand the 2 percentage points of rate rises markets are expecting before the end of 2012.

"It would mean the kind of monetary tightening we had pre-crisis and we don't feel the economy is resilient enough to withstand that," Tim Drayson, LGIM economist, said. "If banks pass on any rate rises, which seems likely given pressure to rebuild [their] capital levels, many homeowners will quickly experience a meaningful impact on their cashflows."

He added that higher credit costs would damage business investment and push unemployment up from the current 8pc to 10pc, risking a double-dip recession. "According to our analysis, if the Bank raises rates in-line with market expectations, our model suggests they will need to reverse course in 2012," he said

So many years of ultra-low rates still ahead of us then....

Mark my words, this will go down in history as the best time to have ever had a mortgage.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Eh?

Looks like a well balanced article, that says exactly what ,any of us on here have been saying for some time.

That's funny. I thought you had been saying that people used to pay at 7%, so they will now, and asking what the issue is...

Loughton_Monkey

As a net saver/investor, I have been suffering a "meaningful impact on my cash flow" for the last couple of years!

Why doesn't this guy speak English?

Significant pressure on household revenue = max out the credit cards again.
Involuntary restructuring of personal property investments = Barclays are re-possessing.
Rebalance personal revenue stream towards mature end of economic lifecycle = buy an L&G pension.

HAMISH_MCTAVISH

Graham_Devon wrote: »

That's funny. I thought you had been saying that people used to pay at 7%, so they will now, and asking what the issue is...

Oh here we go again....

What I've said, very clearly, is that base rates of 5% would not increase mortgage payments to an unaffordable level for most people.

However base rates of 5% would divert consumer spending from other things to interest payments, and decrease business investment, and so hurt the wider economy.

Is there a part of that you don't understand?

quantic

I don't really see any benefits of the low rates for most people to be honest, first time buyers at least. Sure the banks are getting a great deal at 0.5% BOE but they sure as !!!! aint passing it on to me. If they go up it will be bad, but I don't think we are much better off then in the recent past. The only difference is that the banks are making a better margin on most mortgages. Margins that will no doubt be kept even if the rate rises, it will be us that are squeezed not their profit margins.

HAMISH_MCTAVISH

quantic wrote: »

I don't really see any benefits of the low rates for most people to be honest, first time buyers at least. Sure the banks are getting a great deal at 0.5% BOE but they sure as !!!! aint passing it on to me.

FTB's are not "Most people"....

Running_Horse

My mortgage began at £550 in 2007, it is now £375.

I fully understand this happy state of affairs will not last forever.

So what? Some of us can remember double digit interest rates, and two rises in a day.

gagahouse

No change today, expect one in the next 3 months though.

de1amo

Id like to see an honest survey on here of how many of the people on an svr are subprime-i went onto svr because it was cheaper than any of the deals offered by the bank as they rebuilt their balance sheets from the consumers--my svr is 2pc--which came down from a high point of about 6pc so i think i can comfitably cope with an increase of 3 times

quantic

HAMISH_MCTAVISH wrote: »

FTB's are not "Most people"....

Sorry, I meant - most people & certainly first time buyers at the least.