People will adjust their spending habits in order to afford their mortgage

Graham_Devon

This was the response from Martin Ellis today after being interviewed by the BBC.

He stated that he does not feel that house prices are rising out of kilter with incomes, as if you look at peoples mortgage payments, they are lower than the historical average.

When the BBC news presenter stated "yes, but thats because interest rates are so low, what happens when they go up". He stated that they feel they are going to be low for a long time yet, and when they do go up, they will br gradual increases and therefore people will simply be able to adjust their spending in order to pay their mortgages.

Now, this is said a lot on here aswell, so I just did a little calculation:

150k mortgage at 4% = £800.

If rates (mortgage rates that is, and they are rising already) rose 2%, the monthly payment would increase by £177 a month.

That leaves mortgage rates at a still low 6%. In 2007, my standard mortgage was running at 7.5% with base rates at 5.5%.

7.5% rates would increase the monthly payment by £321 a month.

So, let's start with £177 a month with base rates at a mere 2-3%. How would families simply "adjust their spending" in order to save £2,124 a year?

Any ideas? It's a hell of a lot to cut back on, and its something often said on here, so what could go in order to save that much money?

CLAPTON

what is a the average income of some-one with a 150k mortgage?

Graham_Devon

CLAPTON wrote: »

what is a the average income of some-one with a 150k mortgage?

I'd suggest this was really hard to tell. Too many variables, but 30-35K? Maybe 40?

grizzly1911

CLAPTON wrote: »

what is a the average income of some-one with a 150k mortgage?

Depends it could be lower than would be required now.

It could also be lower than when it was taken out. Running costs ex mortgage may well be higher than when the mortgage was taken out too.

Not to forget potential student loan repayment.

CLAPTON

Graham_Devon wrote: »

I'd suggest this was really hard to tell. Too many variables, but 30-35K? Maybe 40?

I would think that maybe true for people who have recently bought (i.e. at the limit of their borrowing capacity) but many people who bought 10-20 years ago might have considerably higher salaries.

However, without knowing that then it's impossible to say how many people will struggle if interest rates go up.

ukcarper

Graham_Devon wrote: »

This was the response from Martin Ellis today after being interviewed by the BBC.

He stated that he does not feel that house prices are rising out of kilter with incomes, as if you look at peoples mortgage payments, they are lower than the historical average.

When the BBC news presenter stated "yes, but thats because interest rates are so low, what happens when they go up". He stated that they feel they are going to be low for a long time yet, and when they do go up, they will br gradual increases and therefore people will simply be able to adjust their spending in order to pay their mortgages.

Now, this is said a lot on here aswell, so I just did a little calculation:

150k mortgage at 4% = £800.

If rates (mortgage rates that is, and they are rising already) rose 2%, the monthly payment would increase by £177 a month.

That leaves mortgage rates at a still low 6%. In 2007, my standard mortgage was running at 7.5% with base rates at 5.5%.

7.5% rates would increase the monthly payment by £321 a month.

So, let's start with £177 a month with base rates at a mere 2-3%. How would families simply "adjust their spending" in order to save £2,124 a year?

Any ideas? It's a hell of a lot to cut back on, and its something often said on here, so what could go in order to save that much money?

What makes you so sure that if base rate increase the high margins banks are using will remain.

grizzly1911

Graham_Devon wrote: »

I'd suggest this was really hard to tell. Too many variables, but 30-35K? Maybe 40?

Would £35K would give net of £23.5k after 6% pension and student loan on old scheme?

robmatic

If only someone could invent some form of mortgage that had an interest rate that was fixed for a period of time...

Graham_Devon

CLAPTON wrote: »

I would think that maybe true for people who have recently bought (i.e. at the limit of their borrowing capacity) but many people who bought 10-20 years ago might have considerably higher salaries.

However, without knowing that then it's impossible to say how many people will struggle if interest rates go up.

This is about people buying now though. It's about house prices and mortgages today and over the past say 2-4 years. Basically ever since rates hit 0.5%.

Quite obviously those who bought 20 years ago won't be having issues and neither will the house price of today really concern them.

Graham_Devon

grizzly1911 wrote: »

Would £35K would give net of £23.5k after 6% pension and student loan on old scheme?

Not sure of the student loan bit, but it would give you a net of 26,617 after NI and income tax.

Of course that doesn't take account of pension contributions and any student debt.

If you add in a pension contribution of 8%, (the average UK contribution is apparently 9.7% according to the beeb) you get a net of £24,377.

Which is kind of why I ask the question of what could be cut back in order to save that amoutn of money per year. As I say, it's said a lot, but the detail is never really considered. Martin Ellis was so blase about it, and then the BBC just cut off the video, so I never got passed his comment of how people would simply adjust.

CLAPTON

Graham_Devon wrote: »

This is about people buying now though. It's about house prices and mortgages today and over the past say 2-4 years. Basically ever since rates hit 0.5%.

Quite obviously those who bought 20 years ago won't be having issues.

is it?

I can't see that bit but anyway the conclusion is the same, without knowing people's income and general circumstances (children etc) it's impossible to say.