At what point does interest rates make you mortgage unaffordible

mr.broderick

mystic_trev wrote: »

With two million people having to renew their fixed rates in the near future there's going to be a major problem. Even if only one in ten are unable to maintain the new rate,that's 200,000 defaulters! I think it'll be a lot worse than that.

I know trev but when have you ever been right sir?

BrandNewDay

:think:

Which came first?

The creative lending practices or the high prices?

Or do they go hand-in-hand?

I'll go with creative lending being first. There have always been people who need to stretch to buy anything, or who want to stretch to go up a level. The lenders just decided there was more money in taking on greater risk. I don't hold this against them, actually. We all know how it goes: greater risk=greater return. These banks have people/computers who just crunch numbers and come up with the expected return on various ventures. Just like someone investing in higher-yielding corporate bonds because the rate is higher... you wouldn't want to put your whole portfolio in it, but it makes sense to allocate a portion of your money to something a bit riskier. So, I'm imagining banks with all these bog-standard 3x salary mortgages thinking they can increase their overall take if they take on a bit of higher-risk investment.

So, they start offering the product and plenty of people are eager to borrow. Property values rise and so the banks continue to make money - even if a borrower defaults, they can sell the house and get back some of their money. Also, the risk isn't necessarily all that high... people will go to great lengths to avoid losing their home. The same people who will default on a credit card will move heaven and earth to keep their home. By the time they DO go under, the lender has often made back their initial capital in repayments and interest, and they still have the property to sell.

MarkyMarkD

mystic_trev wrote: »

With two million people having to renew their fixed rates in the near future there's going to be a major problem. Even if only one in ten are unable to maintain the new rate,that's 200,000 defaulters! I think it'll be a lot worse than that.

Of course it won't, for lots of reasons:

- not everyone who rolls off a fixed rate and suffers a rate increase of c.1.5% is going to be pushed into penury; most of them could switch to a variable rate and pay less than a new fixed rate would cost in any case to save money in the short term if they are desparate.
- most people who have had their house for at least 2 years are sitting on a substantial amount of equity - many because they already had equity 2 years ago, and others because house prices have risen significantly over those 2 years. So even if they can't maintain their payments, they can sell up rather than defaulting - not everyone is stupid and irresponsible.

The only people who are likely to default are those who don't consider their options properly - in other words, don't even consider selling up and clearing their debt - and those who cannot sell up because they have over-borrowed on other secured loans.

albacore1854

Erm the flaw here Mark is that if its anything like the last crash, they won't be able to sell. The repo's will be king of the market, given the banks will sell for the value of the security if needs be.This will flush prices down the drain, same as last time.People will see that they have no way of paying off the 50/80/100K whatever of neg equity, and hand keys back.

You then get to the point that supply will be greater than demand.Who is gonna want a 2 bed box, flats become nigh on unsaleable.

Been there seen it done it !

[Deleted User]

I know who'll be one of the first repo depo's

http://forums.moneysavingexpert.com/showthread.html?p=5822516#post5822516

PMSL checked out first nationals interest rates and there over 8% (about 2.5% above base rate), this is interest only on a 7 times multiplier

If interest rates go up to say 8% this person will be paying 22.5K per year in interest on a 30K salary (which after tax is around 21K)

hahahahahahahahahhahahahhah

dannyboycey

Gillybean wrote: »

we have a BTL which we pay the mortgage on and bank the rent, so we'd just have to let the rent pay the mortgage and use our money to pay just the one mortgage

If you can do that without a monthly defecit, you are in the minority, and very lucky. Many people with BTL's are already subsidising interest only mortgages out of their own pockets - their only plan being that house prices will increase and give them some equity. Otherwise, if prices come down, they are screwed big time!! ...And that is putting it lightly.

dannyboycey

Yant1 wrote: »

this is interest only on a 7 times multiplier

Anyone taking an interest only mortgage at 7 times salary has to be mentally lacking!!

It comes down to greed. If a house is 7 times your salary, it's out of your price range... simple as that!

phlash

MarkyMarkD wrote: »

Of course it won't, for lots of reasons:

- not everyone who rolls off a fixed rate and suffers a rate increase of c.1.5% is going to be pushed into penury; most of them could switch to a variable rate and pay less than a new fixed rate would cost in any case to save money in the short term if they are desparate.
- most people who have had their house for at least 2 years are sitting on a substantial amount of equity - many because they already had equity 2 years ago, and others because house prices have risen significantly over those 2 years. So even if they can't maintain their payments, they can sell up rather than defaulting - not everyone is stupid and irresponsible.

The only people who are likely to default are those who don't consider their options properly - in other words, don't even consider selling up and clearing their debt - and those who cannot sell up because they have over-borrowed on other secured loans.

I'm correct one of your sweeping statements from "house prices have risen significantly over those 2 years." to "average house prices have risen signifcantly over those 2 years". Where the average house is MASSIVELY scewed by London and Northern Ireland over the last two years.

My area has struggled to keep up with inflation, and is certainly no where near the 'average'.

Be careful with broad sweeping statements.

FYI: A c1.5% increase in rates is actually a 35% increase in their interest payments. Please do not try to argue that that isnt significant and will not affect many households.