Think about the mortgage you are taking on, the debt you are taking on

ruggedtoast

Generali wrote: »

He's talking about 25 and 30 year periods of time. Do you really expect him to be able to predict what will happen to interest rates over that time period?

What he's doing is trying to reduce the chances of a house price bubble getting going. He's saying to people, 'you can borrow £250,000 from the Nationwide and pay £700 a month for a couple of years but you have to consider that when the fixed rate is up you'll possibly be paying 7% (5% average base rate + 2% spread) which is over a grand a month more in payments'.

I suspect nobody will listen and everything is being put in place for another big run-up in UK house prices. He is doing his best to stop it but I doubt it'll work. He'll have to crank up interest rates in the end.

/Gulps
/Swallows
/Coughs

It'll, er, never happen.

Scrootum

Could he be sending a message that rates may be going up a little sooner than many expect?

Road_Hog

Scrootum wrote: »

Could he be sending a message that rates may be going up a little sooner than many expect?

In a word, yes.


Any day after 7 May 2015.

Rinoa

Well, it's the Guardian init.

No doubt their reporter asked the loaded question knowing full well Carney would oblige and preach moderation. The Guardian can then run the headline "Carney Warns House Buyers".

Guardian readers everywhere can then nod wisely over their cornflakes, their bias confirmation fully satisfied. I wonder how many of them rent?

gallygirl

Personally I think the questions he's asking should have to be answered on a mortgage application.
Realistically what will happen to your wages in the next 3-5 years?
Are you planning children? Do you have a spare xx per month to pay nursery fees?
Do you have a spare xx to pay when mortgage rates rise? If not, what will you do?
If you can cope with nursery fees or mortgage rate rise can you cope with both?
Maybe if people had to commit on paper how they would address these they would stop to think a bit more before jumping in at the maximum they could 'afford'. It's not them who will be paying it back, it's the 'them' 5 years from now.

macaque_2

Graham_Devon wrote: »

States Carney, in a warning to potential home owners.
Blimey, I'm starting to like this bloke.
He also notes in his interview with the Guardian that the bank could act to impose a cap on LTV ratios.
Seems he is somewhat at war with HPI.

UK lenders claim to have cleaned their act up after the mayhem of 2007 but this is clearly not true. For example, one of the myths they have been selling recently is that houses are now more affordable than for years. This however is a transient phenomenon thanks to freakishly low interest rates. A mortgage is a contract which lasts for 25 years and affordability is ultimately measured by average interest charges over the life of the debt (and not short term emergency rates). We don't know where interest rates are going in the medium term but they could surprise people on the upside as much as they did on the downside (especially after a prolonged period of QE).

It is good to see Mark Carney (by implication) challenging the lies and half truths peddled by lenders. My hope is that he will prove to be a better defender of national interests than recent governments.

HAMISH_MCTAVISH

macaque wrote: »

For example, one of the myths they have been selling recently is that houses are now more affordable than for years. This however is a transient phenomenon thanks to freakishly low interest rates.

This crashtastic myth comes up over and over again.

Mortgage rates for most FTB-s are closer to 5% than the ultra low 0.5% base rate.

Because the banks have jacked up their margins above base to record highs.

Mortgage rates for most FTB-s a decade ago were also around 5%.

And a decade from now, chances are mortgage rates for most FTB-s will still be around 5%.

As the current record high bank margins are completely unsustainable when more competition returns to the market, as will undoubtably happen before rates rise.

The banks are currently stress testing affordability on mortgage applications to between 7% and 8%. That is significantly higher than rates at the absolute peak of the last boom and business cycle.

Whereas in reality you can get a 25 year fix for around 5.5%, and completely eliminate any risk from rates rising at all.

michaels

There is also another question - if increasing interest rates up to 5% will cause the house prices to collapse, the housing market to freeze up, the banks to fail and the economy to go into a deep recession, why would interest rates be raised to 5%?

Surely interest rates will be increased if the economy seems to be growing too fast and is putting pressure on prices by an amount needed to cool the economy sufficiently to reduce the pressure on prices. Why would they need to be increased to the point where there is financial armageddon?

A final point, what proportion of mortgages have been taken out during the ultra low interest rate period - given the low level of housing market activity, I would guess that it is probably less than 20% of all outstanding mortgages. Therefore 80% of mortgage holders have in the past coped perfectly well when the base rate was 5+% so why should they no longer be able to do so?

grizzly1911

michaels wrote: »

Therefore 80% of mortgage holders have in the past coped perfectly well when the base rate was 5+% so why should they no longer be able to do so?

Flat,declining pay and disposable income for many has declined whilst non discretionary household costs have increased. There is no guarantee that pay will ever catchup given the growing impact of globalisation.

At the moment council tax for many has been held but at some point that cork will come out of the bottle again too.

the_flying_pig

HAMISH_MCTAVISH wrote: »

This crashtastic myth comes up over and over again.

Mortgage rates for most FTB-s are closer to 5% than the ultra low 0.5% base rate.

Because the banks have jacked up their margins above base to record highs.

Mortgage rates for most FTB-s a decade ago were also around 5%.

And a decade from now, chances are mortgage rates for most FTB-s will still be around 5%.

As the current record high bank margins are completely unsustainable when more competition returns to the market, as will undoubtably happen before rates rise.

The banks are currently stress testing affordability on mortgage applications to between 7% and 8%. That is significantly higher than rates at the absolute peak of the last boom and business cycle.

Whereas in reality you can get a 25 year fix for around 5.5%, and completely eliminate any risk from rates rising at all.

i take it that those wee factoids & snippets of 'analysis' are intended to bore the reader into indifference by the time he gets to what i assume is your [questionable] central proposition: 'borrowing rates won't go up when the base rate goes up'? worked a treat on me, anyway.