[Realistbear]

http://www.telegraph...rest-rates.html

Home owners being restricted with loans based on future interest rates
The amount of money banks and building societies are willing to lend to home owners is being based on future interest rate rises for the first time, it can be disclosed..../

Despite an average two year fixed rate mortgage being 4.75 per cent, some high street lenders are basing their affordability calculations on almost double this amount.

Some lenders suggested that when deals run out, borrowers could end up paying a SVR of 8 per cent or higher.

The extra restrictions mean a family with a household annual income of £60,000 may only be able afford to borrow the equivalent of one year’s salary instead of a more traditional three times multiple.

Anticipating a doubling of mortgage costs sounds sensible if you also take into account the degree to which affordability will be impacted by unemployment which will continue rising as the double dip worsens. House prices will take a huge hit this year and Rightmove may well make more money as a flood of properties get listed on their website.

[interestrateripoff]

The doubling of mortgage rates will not happen, it would crash the entire financial system. Shouldn't the banks be more concerned about current borrowers? Can they afford interest rates at 9%?

You then have to consider the wider economic impact, rates at 9% would cause a collapse in aggregate demand leading to a massive collapse in GDP as consumer spending would stop.

This isn't going to happen.

[cashinmattress]

interestrateripoff, on 27 February 2010 - 09:17 AM, said:

The doubling of mortgage rates will not happen, it would crash the entire financial system. Shouldn't the banks be more concerned about current borrowers? Can they afford interest rates at 9%?

You then have to consider the wider economic impact, rates at 9% would cause a collapse in aggregate demand leading to a massive collapse in GDP as consumer spending would stop.

This isn't going to happen.

Oh really? You having a 'I'll eat my hat if.." Krusty moment?

You assume that the banking cartel has a heart and compassion for their clients.

People can afford to pay more out on loans, and they will.

Government can change the goalposts at will.

I don't agree with you on that one.

[Realistbear]

interestrateripoff, on 27 February 2010 - 09:17 AM, said:

The doubling of mortgage rates will not happen, it would crash the entire financial system. Shouldn't the banks be more concerned about current borrowers? Can they afford interest rates at 9%?

You then have to consider the wider economic impact, rates at 9% would cause a collapse in aggregate demand leading to a massive collapse in GDP as consumer spending would stop.

This isn't going to happen.

The entire financial system already collapsed. We are in an Alice in wonderland position waiting for the other shoe to drop. Sterling is the barometer of how the market sees reality and the dire state of our economy. Debt places us next to Iceland and the way out is a downgrade in our credit rating with higher IR to reflect risk.

[singlemalt]

Thought it was a very apt photo in that article.

[interestrateripoff]

cashinmattress, on 27 February 2010 - 09:21 AM, said:

Oh really? You having a 'I'll eat my hat if.." Krusty moment?

You assume that the banking cartel has a heart and compassion for their clients.

People can afford to pay more out on loans, and they will.

Government can change the goalposts at will.

I don't agree with you on that one.

No the maths says it won't happen, compassion has nothing to do with it. Rates that high would kill the economy. Mortgage rates at 6% crashed the system meaning the base rate having to collapse to 0.5%, just what do you think would happen if mortgage rates hit 9%?

So if wages are cut you think people will be able to afford the loan repayments? I don't share your confidence.

People might be able to afford higher rates for a short period but at the cost of wider consumption in the economy. This would trigger a chain reaction across the rest of the economy as demand would collapse.

[Mikhail Liebenstein]

Realistbear, on 27 February 2010 - 09:13 AM, said:

http://www.telegraph...rest-rates.html

Home owners being restricted with loans based on future interest rates
The amount of money banks and building societies are willing to lend to home owners is being based on future interest rate rises for the first time, it can be disclosed..../

Despite an average two year fixed rate mortgage being 4.75 per cent, some high street lenders are basing their affordability calculations on almost double this amount.

Some lenders suggested that when deals run out, borrowers could end up paying a SVR of 8 per cent or higher.

The extra restrictions mean a family with a household annual income of £60,000 may only be able afford to borrow the equivalent of one year’s salary instead of a more traditional three times multiple.

Anticipating a doubling of mortgage costs sounds sensible if you also take into account the degree to which affordability will be impacted by unemployment which will continue rising as the double dip worsens. House prices will take a huge hit this year and Rightmove may well make more money as a flood of properties get listed on their website.

RB, I have to say I disagree with you on this. My suspicion is that we are more in for a long hard Japanese style slog than a sudden IR hike and associated collapse, though we'll differ from Japan in not seeing such obvious deflation. The reality is the Government doesn't give a monkeys about Sterling and so I suspect we will see Sterling fall again in the near term and thereby more inflation, but at the same time they'll just kick of QE again. They'll keep doing this in the hope of driving the economy forward, and all it will do is generate 3%-5% inflation over a sustained period, so within 7 years the debt problem will be significantly reduced.

The trouble with the high IR scenario is that no Government will ever sanction it, the damage to the real economy would be immense and would never recover in time for the next election.

This is essentially a repeat of the 1970s. We are already seeing wage hikes in some industries, bankers and evensome univeristy lecturers have had big rises. I'm in IT Sales, and whilst i had to change job to do it, I've put my base salary up by over 50% since 2007. If you can prove you add value people will pay for it, but I suspect it is the less skilled jobs that face the brunt of globalisation.

What seems to happen is that during a recession firms shed their less productive workers, but often have to pay more to keep the good ones. When recovery comes average wages in the firm have risen and so when people get re-hired the expectation of what a decent salary is often higher and so off kicks the next boom.

This post has been edited by mikelivingstone: 27 February 2010 - 09:35 AM

[chris c-t]

If IRs hit 9%, one might be able to buy a house with, say 50 oz of gold?

[Pedro for the Fed]

interestrateripoff, on 27 February 2010 - 09:17 AM, said:

The doubling of mortgage rates will not happen, it would crash the entire financial system. Shouldn't the banks be more concerned about current borrowers? Can they afford interest rates at 9%?

You then have to consider the wider economic impact, rates at 9% would cause a collapse in aggregate demand leading to a massive collapse in GDP as consumer spending would stop.

This isn't going to happen.

the market decides IR's,CB's decide base rates.never say never.

some mortgage rates are already way hgiher courtesy of lower LTV requiremnets,ie forcing more capital up front.you never see them mention that on the BBC do you?but it is effectively a massive hike in debt servicing costs,jsut anpother way of doing it under the radar.

no BTL's now over 75% LTV.


obviously,higher IR's is bullish for stocks!!!!!buy buy buy!!!!!!!!!!

[non frog]

The interest rate will be what it will be. Its not set by the lenders and if the bank rate is 12% they will not have a SVR mortgage at 5%.

Anyone borrowing money for any reason on any loan that has a variable interest rate would be very well advised to stress-test their repayments to a rate of one or two percent above the long term average figure for the period of the loan.

Relying on the BS in the chip-wrapper media or the word of some politician is an unwise policy.

Interest rates of 10% or more seem a real possibility to me in the near future. I am looking at buying a business and my affordability criteria calculations are based on 11.5% The loan would be over 10 years. I have stress tested the model to 22%

[VeryMeanReversion]

>The extra restrictions mean a family with a household annual income of £60,000 may only be able afford to borrow the equivalent of one year’s salary instead of a more traditional three times multiple.

I thought this article is a big deal. The top few earners will be able to buy a third of an average house (at current prices).

Bit of a dodgy maths involved in the article but even then, it only makes sense for lenders to offer mortgages that can be afforded over the full term of the mortgage period. If only they had thought of that earlier.

Looks to me like another step towards the death of the mortgage market. There are no funds available anyway since MBS died.

No real wage increases and dramatically reduced mortages should be good for at least 50% halving in house prices. If only goverment left the market to sort itself out, otherwise nothing will happen to prices if they keep print support.

VMR.

[Pedro for the Fed]

mikelivingstone, on 27 February 2010 - 09:34 AM, said:

RB, I have to say I disagree with you on this. My suspicion is that we are more in for a long hard Japanese style slog than a sudden IR hike and associated collapse, though we'll differ from Japan in not seeing such obvious deflation.

This is essentially a repeat of the 1970s.
.

one difference between us and japan is that they had willing buyers for their govt debt internally ie mr/mrs watanabe.the big buyers of Gilts are not UK based.

as for the 1970's that was an inventory recession,this is a credit recession.to me,big difference in terms of inflation risk

[Mikhail Liebenstein]

Pedro for the Fed, on 27 February 2010 - 09:36 AM, said:

the market decides IR's,CB's decide base rates.never say never.

some mortgage rates are already way hgiher courtesy of lower LTV requiremnets,ie forcing more capital up front.you never see them mention that on the BBC do you?but it is effectively a massive hike in debt servicing costs,jsut anpother way of doing it under the radar.

no BTL's now over 75% LTV.


obviously,higher IR's is bullish for stocks!!!!!buy buy buy!!!!!!!!!!

If you actually think there is a market, you have been sadly mislead.

I have now realised that in essence we have a banking cartel and the cartel manages the system. It got out of control in 2002-2007 and was just shifting volume, but as the cartel doesn't want to go bust again it will try to maintain solvency of the borrowers.


One of the weird features of this downturn has been a lack of repossessions, which we now has been the result of policy, and this has had the effect of protecting the banks from further losses. If the market had been left alone we'd now have no banks, but the Government would be quickly constructing some new ones.

This post has been edited by mikelivingstone: 27 February 2010 - 10:10 AM

[aa3]

Imo these banks are basically idiots. I doubt we'll see >1% BoE base rates ever again. And Brits seem to be agreeing with me, I was reading that between 80-90% of new mortgages taken out right now are on trackers.

[Bloo Loo]

interestrateripoff, on 27 February 2010 - 09:17 AM, said:

The doubling of mortgage rates will not happen, it would crash the entire financial system. Shouldn't the banks be more concerned about current borrowers? Can they afford interest rates at 9%?

You then have to consider the wider economic impact, rates at 9% would cause a collapse in aggregate demand leading to a massive collapse in GDP as consumer spending would stop.

This isn't going to happen.

doubling of rates wont collapse the economy.

for example, pensioners, currently delighted with 2% returns on their cash, will see their incomes double or treble.

only borrowers will lose, and they are currently enjoying those low rates.

If they arent paying down now....thats there look out....