"Any sane person should worry about what will happen when IR's rise"

IveSeenTheLight

Graham_Devon wrote: »

33% EXTRA on tops of existing payments. Not 33% in total.

That's what my link states anyway.

Sky News were doing something on it last night too, showing how much extra a current 200k mortgage would cost at 5% interest rates. Basically the cost today was £1,100, rising to £1,450 at 3% and £1,700+ at 5% rates.

Just looking at those figures it would suggest an extra £350 - £600 a month could quite easily equate to 33% of disposable income.

Ok, a lot to respond to here, but let me bullet point them for your consideration

• Opportunity to fix mortgage rates
• mortgage rates may not match the interest rate change similar to they didn't correlate on the way down
• opportunity to remortgage to a different product / amortization period
• opportunity to go I/O in extreme circumstances
• What is the average disposable income (stats)?
• What is the average mortgage interest payment?
• What is the average repayment costs?
• How much have people reduced their outstanding loans in the period where rates were low?
• When is the expectation of 5% interest rate? Most economist have and still predict a slow measured increase?
• As the interest rates increase, how does that impact on peoples ability to adapt?

There are probably a few more I could consider but this is some things to reflect on immediately

I wonder if the sensational journalism is more at play and we could understand a bit more if we saw the detail behind it.

danothy

Graham_Devon wrote: »

OK.

So once the IPAD and Iphone are sold, raising a one off £250, what happens the months after?

In the months after the cost of running and updating these items to the latest models will be saved too. We All Know For A Fact™ that anyone who owns such a device is a serial updater.

Graham_Devon wrote: »

And do you seriously expect in today's age people to be without a mobile, car, broadband and computer and still take part in modern life?

Yes. I seriously expect that if it was between that and homelessness I and others would work around that.

Graham_Devon wrote: »

Removing these items from the home will "save" piddly amounts of money in comparison to an extra 33% of disposable income being eaten up by the mortgage and will actually increase costs going forward in terms of being unable to secure the best deals on utilities etc.

If you all ready have the best deals you don't need to secure them. Additionally, these aren't the limit of savings that can be made. I get the impression that you simply don't believe that people will adapt in any way, let alone an extreme way.

Graham_Devon wrote: »

Gadgets seem to be something people cling on to as the solution to expensive homes. I'm not too sure why as the amounts saved by not having any of the items you list would be pretty negligible in the grand scheme of housing costs.

None of this is relevant anyway, as it's not an "extra 33% of disposable [(after tax)] income", it's those who either now (or will by 2018 if the rates rise) pay more then a third of that disposable income on the mortgage. The amount of disposable income needed to be diverted isn't specified in the report, but it's clearly less than a third.

You've just fundamentally misunderstood the numbers.

http://www.resolutionfoundation.org/media/media/downloads/Mortgage_note_2.pdf

danothy

Graham_Devon wrote: »

33% EXTRA on tops of existing payments. Not 33% in total.

That's what my link states anyway.

No, you're wrong. It says "the risk of becoming ‘highly geared’, where rising rates mean monthly mortgage repayments will eat into at least one-third of disposable income by 2018" in your link. This means that those classified as "highly geared" have or will have crossed the threshold of one third of disposable income goes on the mortgage. The report specifies the same:

"Those who spend one-third or more of their after-tax income on mortgage repayments in 2014 and, more relevantly, in 2018 – who we describe as being highly geared"

http://www.resolutionfoundation.org/media/media/downloads/Mortgage_note_2.pdf

IveSeenTheLight

Since we are looking at disposable income impact and considering this has been discussed previously (Again and Again), I thought this historical post might be beneficial: -

http://forums.moneysavingexpert.com/showpost.php?p=50881635&postcount=64

Quote:
Originally Posted by Generali View Post
This simple version (link) opens as a .pdf.

2011 weights for the RPI:

Food......118
Catering...47
Alcohol.....60
Tobacco...28
Housing...238
Fuel and light...42
Household goods..65
Household services..63
Clothing and footwear..44
Motoring...137
Fares & other travel..20
Leisure goods.....36
Leisure services..64

They will correspond pretty well with how the average person in the UK spends his or her money. The above is out of 1,000 so the average person spends £2.80 on tobacco of every £1,000 they spend in total (that's spend not earn). A smoker will most likely spend a lot more than that and a non-smoker a lot less (probably £0) but Mr Average spends £2.80.

Here is a really good explanation of the RPI & CPI.

Very Good.
Now, forgetting about the percentages for a second, what would most people priorities lie in order of necessities

For me: -
Food......118
Housing...238
Fuel and light...42
Household services..63 (Not sure what this is for given Fuel and Light are above)
Motoring...137
Clothing and footwear..44
Leisure goods.....36
Leisure services..64
Catering...47
Fares & other travel..20 (Motoring is above)
Household goods..65
Alcohol.....60
Tobacco...28

Taking clothing downwards, that's 36.4% that could be reallocated to higher priority on the list.

So at your worst case, you have cited a link stating that 33% of additional costs for disposable income is redirected to mortgage payments.

I show above that for me personally, I could easily adjust 36.4%, but above all, there are options to restrict the impact on mortgage costs by fixing / adjusting the product.

danothy

Graham_Devon wrote: »

Sky News were doing something on it last night too, showing how much extra a current 200k mortgage would cost at 5% interest rates. Basically the cost today was £1,100, rising to £1,450 at 3% and £1,700+ at 5% rates.

Just looking at those figures it would suggest an extra £350 - £600 a month could quite easily equate to 33% of disposable income.

Just looking at these figures is not the same as understanding them. A £200,000 mortgage with a monthly repayment of £1,100 would have an interest rate of 4.43%. If this rose 2.5% (in line with a base rate rise to 3%) you'd be looking at a rate of 7.42% and on to 9.43% corresponding to the 5% base rate.

Even if you were at the "highly geared" threshold at the bottom end of those repayments your disposable (i.e. after tax) income would be in the order of £3,300 a month. There's no way that even a £600 increase could be classed as a third of that. And that completely ignores the fact that "Sky News", whoever the eff they are, took it almost twice as far as the report.

In fact, if £600 (the 5% increase) was a third of your disposable (after tax) income you'd have all ready been spending 61% of your disposable income on that mortgage. If £350 was a third of your disposable then you'd have been spending more than you had coming in just on that mortgage.

IveSeenTheLight

danothy wrote: »

Just looking at these figures is not the same as understanding them. A £200,000 mortgage with a monthly repayment of £1,100 would have an interest rate of 4.43%. If this rose 2.5% (in line with a base rate rise to 3%) you'd be looking at a rate of 7.42% and on to 9.43% corresponding to the 5% base rate.

At the peak of 2007, the correlation between mortgage rates and base rate was circa 0.26%

Now the correlation is about 3.26%.

There is no guarantee and most would not expect that if interest rates increase from 0.5% to 3.5%, that mortgage products would maintain the same margin.

Most likely, as interest rates rise, they will match but slowly contract the margin.

danothy

IveSeenTheLight wrote: »

At the peak of 2007, the correlation between mortgage rates and base rate was circa 0.26%

Now the correlation is about 3.26%.

There is no guarantee and most would not expect that if interest rates increase from 0.5% to 3.5%, that mortgage products would maintain the same margin.

Most likely, as interest rates rise, they will match but slowly contract the margin.

This was partly what I was seeking to illustrate, and partly to correct the inaccuracy of the suggestion that the repayment amounts corresponded to 3% or 5% "interest rates".

purch

IveSeenTheLight wrote: »

At the peak of 2007, the correlation between mortgage rates and base rate was circa 0.26%

Now the correlation is about 3.26%.

There is no guarantee and most would not expect that if interest rates increase from 0.5% to 3.5%, that mortgage products would maintain the same margin.

Most likely, as interest rates rise, they will match but slowly contract the margin.

It is possible, albeit very highly unlikely that SVR could fall if the base rate rose from it's current level.

The correlation between the two is not nearly as clear cut as many assume.

IveSeenTheLight

purch wrote: »

It is possible, albeit very highly unlikely that SVR could fall if the base rate rose from it's current level.

The correlation between the two is not nearly as clear cut as many assume.

Totally agree, yet some assume that the margin will be maintained.
It's possible they could try this, but essentially market forces and competition will drive a change in my opinion.

CLAPTON

Graham_Devon wrote: »

So are there no examples of gadgets you can provide? Only it was your solution, so thought you'd have something in mind?

As for talk of rates when they were 15%, you fail to mention wage inflation at the time.

to understand how people can reduce expenditure where necessary you would do worse that read around other boards on this website

1. start by understanding where every penny goes : that is keep a spending diary and write down absolutely everything for a least a month for the whole family

2. you will then start to find out how much you spend on e.g. lunches, newspapers, travelling, haircuts, food etc etc.

3. then analyse the regular bills, utilities etc

once you know where thing go you can look at savings
- food
most people could eat more healthily for less ; try reading the old style board here
replace bought lunches with home produced; cut out expensive coffees , drink water rather than juice (bad for you anyway)
a family would probably save about 200 each and every month

-utilities : move round to the cheapest providers; ware warmer clothing; reduce thermostat, have the heating on for shorter periods, wait for full washing loads, turn off light, only heat rooms when required
probably save a few hundred each year depending upon current bills

-'entertainment : phone, mobile phones, sky/BT sport/ netflix/ love films / broadband etc can easily come to 200 per month
could easily save 100-150 per month

-travel ; think walk, bike, reduce unnecessary trips to shops; do you need two cars etc , shop around for insurance, haggle if you have breakdown cover
difficult to say what is saved as it so much depends where you live and your lifestyle but on average I would say several hundred to over a thousand a year.

-holidays/xmas/birthdays etc all offer areas of substantial savings

- clothing offers some opportunities too

so there are some useful tips for you to try out and I've barely started