What will happen when interest rates rise?

CLAPTON

midnight_child wrote: »

Moving away from mortgages for a moment........


Someone in the mid 20s will have never experienced anything other than historically low interest rates (as an adult), so are likely to be less prepared for a rate rise. They are unlikely to be homeowners, but will be taking out car finance, loans to help pay for study (on top of SLC loans) and have credit card debt. This demographic tends not to have much in savings and stereotypically spends all of their income on iPhones, festivals, designer clothes, and nights out. This group is less experienced, and so more likely to be on lower pay grades, perhaps working for NMW on a zero hours contract.


I suspect this group (under 30's) to be particularly adversely affected by a rate rise.

nobody under 30 without a mortgage should be in debt
they should be net savers for that all important first house.

with excellent cheap cars at a couple of thousand, prices suppressed, cheap flight available for holidays etc there is absolutely no reason to be in debt at all.

if indeed these people are in debt then a rate rise might provide a useful learning experience (although I doubt that car loan, credit card rates etc will be affected by 0.25% bank rate change.

lippy1923

What under 30's in their right mind would make the poor choice of an expensive car loan for a car they cannot afford to buy outright and not get 0% credit cards for their spending?

midnight_child

CLAPTON wrote: »

nobody under 30 without a mortgage should be in debt
they should be net savers for that all important first house.

with excellent cheap cars at a couple of thousand, prices suppressed, cheap flight available for holidays etc there is absolutely no reason to be in debt at all.

if indeed these people are in debt then a rate rise might provide a useful learning experience (although I doubt that car loan, credit card rates etc will be affected by 0.25% bank rate change.

Really? Your utopian ideal seems not reflect reality as ONS says 16-24 is the most indebted age bracket (excludes property debt). http://www.ons.gov.uk/ons/dcp171776_412308.pdf


The recent graduates I know are earning maybe 18-22K, and these are people who have been to well respected universities, studying good courses and are lucky to have found "proper" jobs, and are not scratching out a living working at Wethersp00ns.


If you were just starting in the world of work, in an entry level job would you really be saving everything you could for 5 years, on the off chance you might be able to meet affordability on a 1 bed flat?


I can understand why the group lives for today, as their future seems so unattainable.


Note also that this age group will have large student loan debts (about 40K these days) that are charged interest at variable rate. Rates rising will mean they will take far longer to clear.

CLAPTON

midnight_child wrote: »

Really? Your utopian ideal seems not reflect reality as ONS says 16-24 is the most indebted age bracket (excludes property debt). http://www.ons.gov.uk/ons/dcp171776_412308.pdf


The recent graduates I know are earning maybe 18-22K, and these are people who have been to well respected universities, studying good courses and are lucky to have found "proper" jobs, and are not scratching out a living working at Wethersp00ns.


If you were just starting in the world of work, in an entry level job would you really be saving everything you could for 5 years, on the off chance you might be able to meet affordability on a 1 bed flat?


I can understand why the group lives for today, as their future seems so unattainable.


Note also that this age group will have large student loan debts (about 40K these days) that are charged interest at variable rate. Rates rising will mean they will take far longer to clear.

my reading of the ONS data is somewhat different to yours

should young people save to get a mortgage?

obvious YES : most of the UK provides accommodation within their financial means

actually most people of this age don't have student debts of 40k for obvious reasons

michaels

midnight_child wrote: »

Really? Your utopian ideal seems not reflect reality as ONS says 16-24 is the most indebted age bracket (excludes property debt). http://www.ons.gov.uk/ons/dcp171776_412308.pdf


The recent graduates I know are earning maybe 18-22K, and these are people who have been to well respected universities, studying good courses and are lucky to have found "proper" jobs, and are not scratching out a living working at Wethersp00ns.


If you were just starting in the world of work, in an entry level job would you really be saving everything you could for 5 years, on the off chance you might be able to meet affordability on a 1 bed flat?


I can understand why the group lives for today, as their future seems so unattainable.


Note also that this age group will have large student loan debts (about 40K these days) that are charged interest at variable rate. Rates rising will mean they will take far longer to clear.

I may be out of date but I thought student debt rates were linked to inflation not interest rates so any increase in bbr which acts to bear down on inflation will reduce any increase in student loan interest?

Generali

michaels wrote: »

I may be out of date but I thought student debt rates were linked to inflation not interest rates so any increase in bbr which acts to bear down on inflation will reduce any increase in student loan interest?

That would be far too simple. Where would be the fun in that?

http://www.slc.co.uk/services/interest-rates.aspx

midnight_child

CLAPTON wrote: »

my reading of the ONS data is somewhat different to yours

should young people save to get a mortgage?

obvious YES : most of the UK provides accommodation within their financial means

actually most people of this age don't have student debts of 40k for obvious reasons

Student loan debt is around 40K for those who have the top up fees of up to 9K. The first cohort of these students graduated this summer, and are due to start repayments in April 2016. Admittedly those who graduated a few years ago will "only" have around 20K of debt. Last time I looked nearly half of young people were going to Uni, so whether its 20, 30 or 40K that is an awful lot of young people who are being conditioned into taking on eye-watering levels of debt, often without the hope of ever repaying it.


I don't dispute that people need to save in order to raise a deposit. However, it will take a hell of a long time to raise even 5% in many areas on a below average salary. You probably have no chance unless applying as a couple and that's hoping that prices have not increased in the meantime. My point was that home ownership is so far out of their reach of the early-mid 20s of today (unless funded by parents) there would seem little point bothering. My parents certainly would not be able to afford to buy their house now, which is a fairly modest end of terrace bought in the 70s.

midnight_child

Generali wrote: »

That would be far too simple. Where would be the fun in that?

http://www.slc.co.uk/services/interest-rates.aspx

Glad I have one of the pre 2012 ones. Those new ones currently being are charged 5.5% :eek:

Mistermeaner

I thought the new loans act like a tax and were written off after a given period, with the amount charged being income based rather than debt based ?

Off topic I in know but problem is too many people going to uni who don't need to, we can't pay for them and they can't pay for themselves

midnight_child

Mistermeaner wrote: »

I thought the new loans act like a tax and were written off after a given period, with the amount charged being income based rather than debt based ?

Off topic I in know but problem is too many people going to uni who don't need to, we can't pay for them and they can't pay for themselves

Anything you earn over 17.5K (or I think its about 21K for the new loans) you have 9% taken towards repayment. Having >£100 deduction per month does grate somewhat when my older colleagues earning more keep this as disposable income.