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Jonnybegood

How Much Of An Effect Will Rising Ir Have

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Some facts:

Property is selling

Mortgages getting easier to obtain

Prices are rising

IR currently 0.5%

Average mortgage rate for new mortgage across all products 4.1% (Long term fixed being the highest)

LTV average 65%

Over the last 18mths there has been a dramatic fall in the number of mortgage products available and LTV have fallen quite a bit from April 2007 where the average was 95%.

Interest only products have all but disappeared from the market also

So I took some figures and done some mortgage calculations

All based on £100k over 25 years

2007 - Fixed rate mortgage @ 5% = £591pm or £416pm IO

2008 - Tracker @ 4% = £533pm or £333pm IO

2009 - Best rate tracker mortgage @ 3% = £478pm or £250pm IO (If available)

For those existing homeowners on an existing tracker 1% above base rate could see a rate as low as 1.5% = £402pm or £105pm IO.

However many products have a clause that the rate only ever goes as low as 3% no matter what the BOE base rate.

So those who are saying that IR are having a massive effect on the housing market then just look at how much of an effect an IR of even 1.5% has over 5% on a repayment mortgage £189 per month or just over £2k per annum saved, not that great a saving when you look at the headline BOE 0.5% IR, and that is only if your mortgage rate was to fall as low as 1.5%, many don't.

Its a bit different with IO mortgages but for the vast majority of repayment mortgages they would of seen very little difference in monthly repayments even though we have historically low IR.

So the next question how long will it take for IR to get back up to 5%, many commentators are saying 2011 when they see a more clear path to recovery, some even point beyond 2012.

I personally think IR will remain below 2% until well after the next GE, rising steadily in 2011 to reach 5% by 2012.

By this time on paper the crisis of 2007 will be 5 years behind us, unemployment have fallen and companies getting back into profit.

In other words the government will have starved off the worst of the economic fallout and in a position to increase rates and even then as pointed out in the calculations above we are only going to be back to the rates being charged in 2007 for the majority.

What if rates rise above 7%, this would add £120 monthly to a 5% repayment fixed deal that was taken out in 2007, again for most affordable especially if by 2012 the economic climate has improved considerably and job security that much better.

Who knows we may all be earning far more by then

Edited by Jonnybegood

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Interesting thoughts

But in a macro sense any rises will have a much bigger affect especially against a backdrop of rising unemployment, decreasing disposable incomes and increasing numbers of mortgage defaults.

It really does depend on how long and how low interest rates can be kept. Simples.

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