Interest rates will rise faster and higher than anyone expects

DervProf

RenovationMan wrote: »

I drifted onto here and saw the ISA discussion and joined in. With the IO stuff, I haven't read the report, I was just following on from what had been posted previously by Derv. Its difficult to understand how so many people are being moved to IO because of their debts when so many providers are putting restrictions on doing this very thing?

A bit of "pressure" from the government not to repossess ?

I would think that because the banks are in the position that they are today, the last thing they need to do is to start repossessing properties. If their customer is starting to struggle to meet monthly repayments, surely it is better for the bank, and the customer, to "ease" the situation by switching to IO.

I know from my own situation, and through talking to a few friends, that people are seeing their outgoings increase, but their incomes are largely flat or falling. It doesn't take a great leap of faith to then believe what I typed above.

I know there is no evidence of what I'm saying, but likewise there is no evidence that people are switching to IO to "take advantage" of high savings rates and low mortgage rates. It is a matter of weighing up what we do know, them coming to your own conclusion.

Graham_Devon

RenovationMan wrote: »

There are so many VI's within these reports that it's difficult to know what the truth is these days.

Never a truer word said!

DervProf

wotsthat wrote: »

I posted a link earlier in the thread showing current mortgage average is £109,000 at an average of 3.25%. That's a monthly interest payment of £295 with an additional £90.83 interest required for each 1% rise in mortgage rates.

To me this all looks pretty affordable. If there were really as many people struggling as the headlines would lead us to believe then people would make sacrifices to make mortgage payments. I'd find it incredible if 300,000 were so strapped that they were moving to IO without first, for example, cancelling their Sky package. Sky don't seem worried.

Good reasoning.

That makes sense.

DervProf

wotsthat wrote: »

I have normal circumstances (up to date payments etc.).

I don't know about IO but Nationwide will allow me (for £20) to extend my repayment mortgage to my normal retirement age. I'm seriously considering this and withdrawing my overpayments to take advantage of the differential between mortgage rate and savings rate.

Without even shopping around I can get a differential of 0.6% between mortgage and savings. It's not much but worth £150 - £200 risk free in my pocket as opposed to someone else's and with 10 minutes work involved.

I'm not sure that everyone is as motivated as me to save money but I believe that lots of normal people are using IO in the same way.

Your plan sounds very sensible.

I'm not so sure than people using IO are using it so "cleverly". People like RenoMan are obviously "clued up", and have the self discipline to "use the system". I wonder how many people on IO are actually making sure that they are saving "what they are saving" to pay off the mortgage ? As fuel costs, food prices etc increase, there must be a few than can't save what they were, or need to be saving.

DervProf

The tone of this discussion has improved noticeably.

I wonder why ?

wotsthat

DervProf wrote: »

I'm not so sure than people using IO are using it so "cleverly". People like RenoMan are obviously "clued up", and have the self discipline to "use the system". I wonder how many people on IO are actually making sure that they are saving "what they are saving" to pay off the mortgage ? As fuel costs, food prices etc increase, there must be a few than can't save what they were, or need to be saving.

I'd love to know the figures.

I have a conspiracy theory for you. I don't think the FSA have a clue just how many are moving to IO because they are struggling. The mortgage lenders have this information but aren't sharing it.

The FSA have put out a statement which allows a dubious claim of "300,000 struggling" to be picked up by the media in an attempt to get the mortgage lenders to be more forthcoming with data.

RenovationMan

DervProf wrote: »

I wonder how many people on IO are actually making sure that they are saving "what they are saving" to pay off the mortgage ? As fuel costs, food prices etc increase, there must be a few than can't save what they were, or need to be saving.

Even this shouldn't be too much of a problem as long as it's short term (and if it's not then the person needs to look at downsizing to something he can afford) and as long as they are not tempted to MEW.

If a person didn't save/invest a single penny of his IO mortgage over a 25 year period, the final bill shouldn't be too scary. I don't know the actual house prices from 25 years ago so will hazard a guess that a 3 bed semi would have cost about £30k in 1986. Fast forward to now and that 3 bed semi could be worth £180k, so the person could sell up, repay his mortgage and downsize to a smaller place (perhaps because his kids have left home) and own it outright with the tax free £150k he made over those 25 years.

I doubt very much that I will have completely paid off my mortgage by the end of the 23 year term, but then I really doubt that I will want to live in a 5 bed, 3 storey farm house at age 65. My plan is to downsize and buy a 2 or 3 bed stone cottage outright with the released equity.

DervProf

wotsthat wrote: »

I'd love to know the figures.

I have a conspiracy theory for you. I don't think the FSA have a clue just how many are moving to IO because they are struggling. The mortgage lenders have this information but aren't sharing it.

The FSA have put out a statement which allows a dubious claim of "300,000 struggling" to be picked up by the media in an attempt to get the mortgage lenders to be more forthcoming with data.

Nice one.

It is all a bit "smoke and mirrors", I agree. On a similar theme, the low number of repossessions somewhat suprises me. OK, mortgage rates are low, but the average rate is not much lower than it was pre-crunch, as far as I know. Taking into considertaion the economic climate, the rise in unemplpyment and inflation, then I'm suprised the figures aren't a bit higher, or at least increasing. Maybe a factor is that there has been a marked lowering of new buyers in the market, and that means that a larger proportion of mortgage payers are less exposed to current financial difficulties. Unsecured lending seems to have decreased massively, judging by the lack of loan offers I now get. Either they've sussed that I dont want/need a loan, or they aren't dishing the dosh quite so readily. If lenders really are holding back, then I think it's a well needed "pause" for the UK. Debts have to be paid back eventually, you can't keep borrowing off Peter to pay Paul.

Graham_Devon

DervProf wrote: »

Nice one.

It is all a bit "smoke and mirrors", I agree. On a similar theme, the low number of repossessions somewhat suprises me. OK, mortgage rates are low, but the average rate is not much lower than it was pre-crunch, as far as I know. Taking into considertaion the economic climate, the rise in unemplpyment and inflation, then I'm suprised the figures aren't a bit higher, or at least increasing. Maybe a factor is that there has been a marked lowering of new buyers in the market, and that means that a larger proportion of mortgage payers are less exposed to current financial difficulties. Unsecured lending seems to have decreased massively, judging by the lack of loan offers I now get. Either they've sussed that I dont want/need a loan, or they aren't dishing the dosh quite so readily. If lenders really are holding back, then I think it's a well needed "pause" for the UK. Debts have to be paid back eventually, you can't keep borrowing off Peter to pay Paul.

My loan offers have also declined, to the point where I simply don't get any any more.

However, I do seem to have Homeserve on my case about the water supply pipe to my house.

I've had umpteen letters, 2 free trials (not through my choice!) where I have been covered twice for 2 months. No doubt I'll get another letter reminding me soon about my water supply pipe!

DervProf

RenovationMan wrote: »

If a person didn't save/invest a single penny of his IO mortgage over a 25 year period, the final bill shouldn't be too scary. I don't know the actual house prices from 25 years ago so will hazard a guess that a 3 bed semi would have cost about £30k in 1986. Fast forward to now and that 3 bed semi could be worth £180k, so the person could sell up, repay his mortgage and downsize to a smaller place (perhaps because his kids have left home) and own it outright with the tax free £150k he made over those 25 years.

Well, I would just say that past performance is no guarantee to the future. My parent's have seen massive growth in the value of their property over the past 50 years. I would be very suprised, if not shocked if that kind of growth is seen again on their house in the next 50 years, and I am sure that my (more modest) property will not achieve anything like the increase in value that their's has.

All I know is that paying off a mortgage as you go is usually cheaper than paying off the total amount borrowed at the end of the term, and there is nothing like seeing the amount that you owe get lower each year (as you know).

BTW. In the example that you gave, that £150K that they have to spend will not buy a £150K property, as there will be costs of moving to be taken into consideration. EA, legal fees alone will cost a few £K, then there's the associated costs of moving.