BoE warns of risks of rate rises.

wotsthat

lisyloo wrote: »

A very log time, but if we can't pay it back then what's the alernative?

Paying it back is a long way down the worry list at the moment - we haven't worked out how to stop the debt increasing yet.

Mr._Pricklepants

shortchanged wrote: »

But surely this is a warning to everyone about the risks of taking out large mortgage debts and the drag they will be on any potential recovery in the economy.

Well yes, one could continue renting or live with mum I suppose.

Or get a mortgage on extremly low rates now, and start preparing for any future potential rises from day one.

I know what I'd do.

shortchanged_2

Mr._Pricklepants wrote: »

Well yes, one could continue renting or live with mum I suppose.

Or get a mortgage on extremly low rates now, and start preparing for any future potential rises from day one.

I know what I'd do.

Which would be great if house prices were more sensible in the first place.

ILW

Mr._Pricklepants wrote: »

Well yes, one could continue renting or live with mum I suppose.

Or get a mortgage on extremly low rates now, and start preparing for any future potential rises from day one.

I know what I'd do.

That is the bit i fear many will not bother with. They will then start squealing about mis selling. (Just see IO).

wotsthat

shortchanged wrote: »

But surely this is a warning to everyone about the risks of taking out large mortgage debts and the drag they will be on any potential recovery in the economy.

It's a very small part of the financial stability report issued today. Journalists haven't had time (and don't have the inclination) to read it so have just used the teasers handed to them by Paul Tucker.

The warnings you refer to don't really feature in the report. They're more concerned about bank capital than people taking on big mortgages.

shortchanged_2

wotsthat wrote: »

The warnings you refer to don't really feature in the report. They're more concerned about bank capital than people taking on big mortgages.

Don't you think big mortgages are a potential problem then wotsthat?

okborednow

Mr._Pricklepants wrote: »

Well yes, one could continue renting or live with mum I suppose.

Or get a mortgage on extremly low rates now, and start preparing for any future potential rises from day one.

I know what I'd do.

ILW wrote: »

That is the bit i fear many will not bother with. They will then start squealing about mis selling. (Just see IO).

Well i'm in the process of buying as a FTB at the moment and that's exactly what i plan to do. At the current rate of interest we can afford to overpay by about £120 every month as well as having a savings account to save for additional emergenies so that's exactly what I plan to do from day 1.

I also took all the figures my broker gave me and went straight to the online calculators where i increased the rate a percent at a time till i was 5% over the rate we'll have intially to confirm we can still afford it. If interest rates were at 8.19% we'd have to make cutbacks but i'm confident we could still afford it.

noodle_doodle

Banks have been slyly putting their rates up to the point where they already charge 3-4.5% more than the BOE rate, so they must have some slack built in, the profiteering gimps

HAMISH_MCTAVISH

shortchanged wrote: »

So is this to be dismissed by some on here that feel that quite small rate rises will not be a problem for many householders in the UK.
.

Not even the BOE thinks it will be a serious problem.

From your article....

If rates rose by one percentage point, to 1.5%, the Bank said households accounting for 9% of mortgage debt would need to take action.

If rates were to rise by two percentage points, to 2.5%, that figure would rise to 20% of mortgage debt.

"Take action" could be as simple as working a few more hours a week or spending less on other things.

And that also assumes that effective mortgage rates would rise by the same amount as base rates, when even the governor of the BOE thinks that is highly unlikely.

Of course, this is likely to be years away still.

Also from the article....

However, on Tuesday, in his last public appearance as Bank of England governor, Sir Mervin King suggested it would be a long time before interest rates increased.

He said world economies were nowhere near a return to "normal" interest rates.

City economists currently expect a rise in rates in about two years' time.

Philip Shaw at Investec said the UK base rate would probably go up to 0.75% in the spring of 2015.

And in the meantime, the BOE are considering something else entirely....

Bank of England: negative rates remain an option

Charlie Bean, deputy governor of monetary policy at the Bank of England, said negative rates could still happen as the Bank mulls ways of boosting lending

wotsthat

shortchanged wrote: »

Don't you think big mortgages are a potential problem then wotsthat?

There are potential problems everywhere however there's not much point in identifying hazards without considering risk. I calculated what interest rates I could afford, considered the chances of them becoming reality and then got on with life. These are normal everyday things to consider.

There's a potential problem in choosing to rent rather than take on a mortgage as that will likely end up as an expensive insurance against an unaffordable mortgage.

I'm not the slightest bit worried about mortgages taken out since 2008 or pre-2005 - they'll be fine.

There'll be a group of people who bought at peak on IO or mewed to the limit but they've had plenty of time to sort themselves out - if rates rise they'll have to deal with it.