Morgage Rate - How much % should we allow for in our budgeting for the future rises?

Hockeynut

I realise some of this is crystal ball stuff. But we are currently looking at new houses, thus an additional mortgage (porting some existing) and adding more.
Like most people we are working out our future budget, and without wanting to be foolish, I realise that rates will probably go up a couple of percent over the next couple of years. So we are trying to make sure we are still comfortable and able to pay in the future... but how far do you take that?

I guess what I'm wondering is when most people are working out this kind of thing, how much do you reasonably work out that you can afford the mortgage up to before it's an issue? 5%? 6%? 7%? I know in the 90's there were crazy peaks, I'm not looking for things like that.

The alternative is we stay where we are pretty comfortably with about half the mortgage and no fear of interest rates whatever might happen with them.

Thanks,
David

libf

http://www.thisismoney.co.uk/money/mortgageshome/article-2631278/Can-pass-5-stress-tests-mortgage.html

getmore4less

How much discretionary stuff are you prepared to do with out if they go up a lot. eg skip a holiday.

If budgeting for a higher rate then just factor in overpayments that way they just get smaller when rates go up, and when they go over that rate the overpayments provide a cushion before the cutbacks start.

Current climate I would say 5% gives a OK buffer and look at 7% for extreme.


The other easy way to build in a buffer is a longer term with overpayments or if you have the cash flow an offset.

HappyMJ

Hockeynut wrote: »

I realise some of this is crystal ball stuff. But we are currently looking at new houses, thus an additional mortgage (porting some existing) and adding more.
Like most people we are working out our future budget, and without wanting to be foolish, I realise that rates will probably go up a couple of percent over the next couple of years. So we are trying to make sure we are still comfortable and able to pay in the future... but how far do you take that?

I guess what I'm wondering is when most people are working out this kind of thing, how much do you reasonably work out that you can afford the mortgage up to before it's an issue? 5%? 6%? 7%? I know in the 90's there were crazy peaks, I'm not looking for things like that.

The alternative is we stay where we are pretty comfortably with about half the mortgage and no fear of interest rates whatever might happen with them.

Thanks,
David

I'd go with 7% as the maximum interest rate after having cut back on everything possible and just paying for the very basics to survive if you've still got £1 left over it's affordable.

£150,000 at 7% would cost £875 per month on an interest only basis. If you spend about £150 a week (£650 a month) on expenses to support a couple then someone on a single full time age of £22,500 would be bringing home £1,532 a month and would have a few pounds left over at the end of the month and therefore it would be affordable. A couple both working full time on minimum wages would be bringing home £1,950 per month and would have plenty left over.