'A mortgage warning, take a look at the UK Interest rates' history..' blog discussion

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  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    UK base rates will, in all probability, rise for only one reason. To fight inflation caused by an excess of liquidity chasing a shortage of goods and services.

    Too much money chasing too few products creates inflation, and the BOE fights this inflation by raising interest rates to destroy demand.

    Now to get to there from here would require the economy and financial markets to move from the current position of insufficient liquidity (we are still in a painful credit crunch, with mortgage rationing endemic and other credit hard to come by), to a future position of surplus liquidity.

    Quantitative easing was designed to alleviate the liquidity shortage by increasing available funding for the banks to lend into the wider economy, but instead has mostly been used to prop up banks balance sheets.

    The inflation we have seen has been mostly due to currency value adjustment and one-off issues like tax increases. Whilst CPI is still above target, CPI-Y (which strips out things like tax rises) is in fact right around target. Raising base rates to combat this type of inflation through demand destruction would be counterproductive whilst the economy is still fragile, and could lead to deflation. Which is why the BOE hasn't raised them despite the CPI measure remaining above target for quite some time.

    In all probability, rates won't rise at all for quite some time, and will not rise very far or very fast when they do. So whilst theoretically anything is possible, I personally doubt we'll see base rates of 3% within the next 5 years, or 5% within the next decade.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”
    -- President John F. Kennedy”
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Such history should be a warning for anyone who is overpaying their mortgage. You may need that overpayment money to keep up with the compulsory monthly payments and your lender may not let you couldn't past overpayments towards it. Find out.

    It's one advantage of offset mortgages, which always do allow you to take out money you've paid into an offset account and use it for the compulsory payment part.

    This sort of thing is also why an interest only mortgage is better than a repayment mortgage. You get the option, from the start, of being able to reduce capital payments to help you deal with short term stresses like this. Even if you have no intent to do anything other than repayment level payments in normal times.
  • debtdesperado
    debtdesperado Posts: 379 Forumite
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    Unfortunately, overpaying is the only option if you bought a 100% mortgage at the top of the bubble, and now aren't actually eligible for any new mortgage deals because LTV, equity, income multiples, credit ratings etc are all against you.
    Don't ask me how I know this....

    It's like I'm doing a reverse deposit save, except that to even get my LTV down to 90% means I have to save £30k...just a little bit daunting. I'm racing to overpay before the rates rise significantly so at least I have the option of getting a mortgage, rather than just being a sitting duck for ridiculously high mortgage payments....It's not the best financial situation I have ever found myself in, certainly...
  • jamesd
    jamesd Posts: 26,103 Forumite
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    debtdesperado, look on the bright side, though, at least the rent payments you would be making are helping to cover some of the costs you have now, so hopefully it's a bit easier accumulating that deposit than it would be if you were still renting.
  • ultrawomble
    ultrawomble Posts: 492 Forumite
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    HAMISH_MCTAVISH wrote: »
    mortgage rationing

    Is that like Rolls-Royce rationing? Can't afford one, can't have one.
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    ultrawomble wrote: »
    Is that like Rolls-Royce rationing? Can't afford one, can't have one.

    The banks currently have a very limited pool of funding available because the wholesale credit markets are still malfunctioning. They therefore ration the available funds through increasing profit margins, raising deposit requirements and tightening credit criteria until the pool of borrowers is sufficiently restricted to meet the limited supply of funds.

    This clearly meets the definition of rationing.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”
    -- President John F. Kennedy”
  • jeferey
    jeferey Posts: 4,300 Forumite
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    Frugal_Moose wrote: »
    I'm on a tracker, base + 0.89, so have been piling cash into overpayments. I think that by the time interest rates go back up my amount owing will have shrunk by about 12k and hopefully that will make it substantially less painful.
    You must be on the same deal as me with ING Direct. I have left my payments the same as if I am paying 6% (which it hit in 2008) with a small overpyment on top. My outstanding balance has gone down 50% in 3.5 years and I should have paid it off in 3 years.
    I remember taking out a fixed mortgage in 1990 for 2 years at 10.5% on my first house, when interest rates were 13% and then went UP to 15%. I did rent my house out, I only bought it to get on the housing ladder.
    I do believe interest rates are going to stay very low for some time as stated by HAMISH_MCTAVISH so I'll be OK but I dread to think how todays kids including my daughters will be able to buy their own property like many of us have.
    If at first you don't succeed, try, try, try - oh bu99er that just cheat :D
  • ultrawomble
    ultrawomble Posts: 492 Forumite
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    HAMISH_MCTAVISH wrote: »
    The banks currently have a very limited pool of funding available because the wholesale credit markets are still malfunctioning. They therefore ration the available funds through increasing profit margins, raising deposit requirements and tightening credit criteria until the pool of borrowers is sufficiently restricted to meet the limited supply of funds.

    This clearly meets the definition of rationing.

    Err, no it doesn't. The definition of rationing is allowing each person to have a fixed amount of each commodity. Clearly that is not happening, therefore "mortgage rationing" is a hysterical misdescription of a condition that does not exist.
  • Sue_S
    Sue_S Posts: 302 Forumite
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    ultrawomble wrote: »
    Err, no it doesn't. The definition of rationing is allowing each person to have a fixed amount of each commodity. Clearly that is not happening, therefore "mortgage rationing" is a hysterical misdescription of a condition that does not exist.

    I think the description is one that most people understand. I wouldn't call it a "hysterical misdescription" even if it may not be entirely accurate. It could be said that rationing describes a situation where those in the greatest need (or who fulfil certain criteria) will be supplied but others won't.

    Back in 1980 when my husband and I had to move because of work we had huge difficulties getting a new mortgage. They were restricted to first time buyers and you had to have savings with the building society before they would consider you. We all regarded that as "mortgage rationing"...
  • wotsthat
    wotsthat Posts: 11,325 Forumite
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    Blimey! - spot the journalist.

    There's a 'ticking time bomb', a 'stark warning' and something 'screamed out' at Martin. After taking a sedative and plucking up the courage to leave my nuclear bunker I read the article in full. It can be summarised as 'Interest rates are below trend, at a historic low, might or might not rise and you should try not to overstretch yourself' - to be fair it's not as eye catching the way I've written it.
    One of the great problems with our collective financial psyche is we normalise whatever the current situation is.

    It's not a problem, let alone a great one, it's a positive human trait. It allows us to adapt from what we thought was normal to what normal might become or what we'd like it to become for ourselves and our families.
    This can lead to bad decision making.

    or it can lead to good decisions or to not making a decision at all
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