'One million buyers have never seen a rate rise'

grizzly1911

"The chief executive of Britain's biggest building society has made a stark warning that a "whole generation" of borrowers have never had to cope with a rise in interest rates.
Graham Beale, writing a blog on the society's website, said one million first-time buyers have bought a property since interest rates fell to 0.5pc in March 2009 and urged them to consider the impact on their budgets if the cost of borrowing were to begin rising.
The warning came as the society's monthly index showed yet further rises in house prices. The UK average price rose 0.6pc last month to £177,846, 9.4pc higher than in February 2013.
Citing Bank of England research, Mr Beale said if mortgage rates were to increase by 2.5pc, to return to 2007 levels, it would push up the cost of a typical mortgage by around £230 a month.
He said: "The proportion of people spending more than 35pc of their income on their mortgage could double."

Experts suggest that 35pc is the safe limit for repayments as a proportion of take-home pay. Mr Beale said: "Aside from too little housing stock is there anything else we should worry about? Interest rates have been static for almost five years now, the longest period since the late 1940s, so a rise in interest rates and the eventual increase in mortgage rates will be unfamiliar for many people.
"More to the point, there have been around a million new first time buyers since rates hit 0.5pc in March 2009, so there is a whole generation of borrowers who have never experienced increases in their monthly mortgage payments."
He said these borrowers will have been tested to ensure they could afford rate rises, due to "stricter underwriting standards", but he added: "Whilst stricter underwriting standards mean recent borrowers will have had to show they could afford their mortgage payments in the event of a rate rise, people should start to consider the impact higher mortgage costs might have on their household budgets.""
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10667025/One-million-buyers-have-never-seen-a-rate-rise.html#disqus_thread

I wonder how many of those, that past the new stringent affordability rules, continue to do so x months down the line?

Percy1983

It is interesting, how many people see this as the norm, or is it infact the new norm?

I know personally I did think about this and could pay if rates went to 25% (would be too happy about it).

But if people have bought right up to the edge of affordability there maybe pain ahead.

Carl31

Something i have realised lately, the majority of people in this country have no idea how to manage money, hence we have food banks and all this crying about economic problems, which in reality is not needed

I am pretty sure that most home buyers could cope quite well with rate rises, but its whether they are prepared to which is the problem, actually, its if they know how to which is the problem

michaels

Umm - if interest rate increases didn't result in reduced expenditure then they would not be the tool of choice to control inflation. When interest rates are increased the size of the increase will be based on how it impacts on demand in the economy, in other words if spending is mroe sensitive to interest rate increases then they will increase by less to control inflation.

Why is this so hard to understand? Yes rate rises will cause 'pain', that is why they are raised but there is no reason they will rise to a level that causes excessive pain because this would bear down more on inflation than is necessary.

CLAPTON

It's factually incorrect.

Lots of people have seen their mortgage rate rise

it's quite staggering (or maybe not) that a CEO of a lending institution thinks the sole determinant of the actual lending rate is BoE base rate.

I was equally amased yesterday when the BBA was opinioning how low the saving ratio in the UK is: they wanted government action but never even considered that saving may increase in saving interest rate were higher.

Anyway there is nothing sacred about 35% of income going to mortgage repayments : most of us have experienced far higher ratios

IveSeenTheLight

Percy1983 wrote: »

But if people have bought right up to the edge of affordability there maybe pain ahead.

Do you consider that since 2009 when rates hit their historic low, there has been 5 years of payments made reducing the loan and 5 years of opportunity for pay rises?

somethingcorporate

CLAPTON wrote: »

Anyway there is nothing sacred about 35% of income going to mortgage repayments : most of us have experienced far higher ratios

Precisely this, if interest rates rise surely people would give up everything (including Sky TV) to keep a roof over their family's heads!?

Percy1983

IveSeenTheLight wrote: »

Do you consider that since 2009 when rates hit their historic low, there has been 5 years of payments made reducing the loan and 5 years of opportunity for pay rises?

Yes for somebody who bought in 2009, what about somebody who bought last week?

IveSeenTheLight

Percy1983 wrote: »

Yes for somebody who bought in 2009, what about somebody who bought last week?

If someone bought last week, they should have had a Key Facts Illustration which has a section asking if the potential mortgage applicant is comfortable with the risks.

It should also Illustrate what the increase would be if rates increase.

There is also a section outlining Fee's that are payable (Booking, Valuation, CHAPS, ERP's etc)

The applicant really should read and be prepared.

In addition, most applications conduct a fact find and assess the monthly budgets income and expenditure so the mortgage provider can assess the affordability and risk.

What else would you propose?

globetraveller

A colleague of mine bought a house which was her dream one. When she was thinking abot buying it I did venture that it was a lot of money but she said they could easily afford the payments. I urged her to imagine the rates going up soon and could they afford it. She was just so in love with the place that she went ahead and bought it anyway. I know what they both earn so I worry about them. Trouble is that although they may get a few years of low rates, if they get to the stage where they can't afford it and need to downsize, it is likely that there will many others in the same boat. Of course many things can happen in the meantime- promotion etc, but it's just one example of potentially many thousands.

movilogo

The govt. always reward who spend recklessly and who don't think what would happen if IR goes up.

Show me proof that I'm wrong (anecdotal examples won't count).