Increase in Rates

saving123

Hi,


we are thinking about moving house and want to make sure we can afford no problem it if interest rates go up. What are rates likely to rise to over the next few years? I know its impossible for anyone to say but even an indication of what I should make sure we can afford?


thanks

ACG

Nobody knows like you say, but it wont rise a lot as yo would find a lot of people start struggling.

From the 26th April all lenders will be stress testing affordability based on rates highr than they are now. So if your mortgage rate increased to around 6-6.5% banks would be comfortable you could afford it - even if you were not living the same quality of life you would have been at say 4%.

Look at it like this, if interest rates went up to say 6% in the next 12 months or so, all of those people on the edge at the minute would be knackered - that would set the country back another 3, 4, 5 years to recover. The BoE do not want that and so are going to be very cautious when increasing rates.

saving123

Thanks - I am more concerned about what might happen over say the next 5/10 years I suppose. I was thinking of working on about 7% but still a bit worried incase it went higher than that.

Thrugelmir

In the decade before the crash. Average SVR was 6.5%. Something many people have forgotten or never paid.

ACG

Look for a 10 year fixed rate?
Downside to that is if you want to move you are relying on being able to port the mortgage to a new property.

amnblog

saving123 wrote: »

Hi,


we are thinking about moving house and want to make sure we can afford no problem it if interest rates go up. What are rates likely to rise to over the next few years? I know its impossible for anyone to say but even an indication of what I should make sure we can afford?


thanks

As of 26th April it will be a legal requirement for the lender to assess this for you.

egoode

When I was trying to work out how much I wanted to borrowed I had a spreadsheet set up and would look at how much of my pay would be used if rates went up to 6% and also up to 10%. I settled on a figure where I could still afford to pay easily at 6% and it's a bit more of a stretch at 10% and I might need to look at cutting back on some other expenses (like holidays, entertainment, etc so nothing essential) if they ever get that high but I could still manage it. However I'm hoping that if rates ever get up to 10% I would have had a pay rise in the meantime and it won't be such a stretch.

M0ney

saving123 wrote: »

Thanks - I am more concerned about what might happen over say the next 5/10 years I suppose. I was thinking of working on about 7% but still a bit worried incase it went higher than that.

Bear in mind that after 10 years the mortgage balance should be considerably reduced meaning that an increase in the rate doesn't have as much of an effect. One way to protect yourself from rate rises in the future is overpay as much as you possibly can now and you could be close to being mortgage free in 10 years.

I took out a mortgage in July 2012 over 25 years and after 3 months I realised that it was easily affordable and reduced it to 20 years all it cost me was an extra £48/month.

Thrugelmir

egoode wrote: »

When I was trying to work out how much I wanted to borrowed I had a spreadsheet set up and would look at how much of my pay would be used if rates went up to 6% and also up to 10%. I settled on a figure where I could still afford to pay easily at 6% and it's a bit more of a stretch at 10% and I might need to look at cutting back on some other expenses (like holidays, entertainment, etc so nothing essential) if they ever get that high but I could still manage it. However I'm hoping that if rates ever get up to 10% I would have had a pay rise in the meantime and it won't be such a stretch.

Not just the interest rate to consider. Do you have savings for emergencies. Such as redundancy or long term sickness. Being reliant on next months pay cheque. Is where peoples downfall starts.

saving123

Thanks for all the advice - we always overpay so I suppose if the rate did increased in the future that would help.

Thrugelmir

saving123 wrote: »

Thanks for all the advice - we always overpay so I suppose if the rate did increased in the future that would help.

Borrow a sensible amount. The dream house can always come later.