Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

There Is Trouble Ahead If Interest Rates Rises

Recommended Posts

http://www.telegraph.co.uk/finance/economics/7901958/There-is-trouble-ahead-if-interest-rates-rises.html

Three years after the financial crisis, there is a plan to fix the mortgage market. It is pretty basic stuff. The Financial Services Authority suggests that, in future, lenders should have to ensure that mortgage repayments are affordable, and verify borrowers' income.

These are the sort of proposals that make one blink in disbelief: were banks really lending to large numbers of people with no visible means of support? Yes, they were; and some still are. There are also vast numbers of interest-only mortgages out there; in most cases there is no obvious plan for repayment, on the rash assumption that rising house prices will, in due course, bail out the borrowers and the banks.

It is shocking that in 2007 and 2008 about half of new mortgages were approved without income checks. But I was still more surprised to learn that even after the crisis, that proportion fell only to 43 per cent in 2009 and the first quarter of 2010. There is nothing wrong, conceptually, with the self-certified mortgage. But in recent years, these specialist products for the self-employed were so widely abused by overly optimistic – or worse – consumers and banks that they came to be known as liars' loans.

In Britain, more than 20 per cent of self-certified mortgages have fallen into arrears, compared with about 6 per cent of home loans to borrowers whose incomes were properly verified.

Only two other countries allowed self-certification on a grand scale – the US and Ireland. The end result seems rather predictable, really: dishing money out at random is, indeed, more risky than selecting borrowers on the basis of strict financial criteria.

Even though the housing market has staged a recovery, there is still plenty of trouble stored up. According to FSA research, 46 per cent of households that took out mortgages between 2005 and 2008 have either no money left or face a shortfall every month, after mortgage payments and living costs are deducted.

In other words, there is no leeway for things to go wrong – and that is exactly what they are likely to do. Interest rates are at unsustainably low levels. Even though banks have padded their returns by charging wider margins, the current variable mortgage rate of about 4.75 per cent is very low by historical standards. If that rate rose to 6 per cent – or 8 or 10 per cent – many borrowers would struggle to keep up with payments. On top of that, unemployment may soon rise sharply: it is hard to believe that planned public sector job cuts will be speedily absorbed by the private sector.

The new guidelines may help guard against future fecklessness but they will not prevent it, and that is as it should be. Banks will still decide how to assess borrowers, and there will be no regulatory requirement for a minimum deposit. Still, not everyone likes the idea of tighter rules. Fast-track mortgages will become, well, slower. It will be harder for first-time buyers to enter the market. (It is already pretty difficult, especially in London, yet the average age for first-time buyers is, nevertheless, a youthful 29). These factors could depress house prices a bit. "The risk," warns the Council of Mortgage Lenders, "is that the gain will not match the pain in the short term." This is quite true, but seems to me rather a good thing. Surely shifting the attention to the long term is exactly the point of the exercise.But something more is needed to tackle the underlying problems manifested by the madness of the mortgage market. Britons have an unhealthy compulsion to take on excessive debt to buy handbags as well as houses. Credit cards and overdrafts can be as dangerous as mortgages; and the peculiar national obsession with owning one's home seems to have encouraged the view that this is a sensible alternative to investing in a pension.

No I think if rates hit 6% many people won't struggle they'll have to default.

Nothing unexpected here for most HPC's but this mess is slowly working it's way into the mainstream media.

Once rates move upwards it's going to be hard to contain this mess.

Share this post


Link to post
Share on other sites

BoE rates, or mortgages rates?

Neither.

If the BoE raise rates, the mortgage lenders will lower them to suck more people into their game. Most people don't yet get what is happening, this is not the way things were anymore. Anybody who thinks we're getting back to the norm is clutching at straws. The boat is just wobbling backwards and forwards with one crisis after another.

There is no way out for banks. They have over-leveraged themselves to ridiculous levels and now can never re-capitalise. There is simply not enough money in the world for the interest to be paid on all the debt they have created unless governments print money stratospherically which would just wipe out most of the population if their wages don't rise.

Share this post


Link to post
Share on other sites
There is no way out for banks. They have over-leveraged themselves to ridiculous levels and now can never re-capitalise. There is simply not enough money in the world for the interest to be paid on all the debt they have created unless governments print money stratospherically which would just wipe out most of the population if their wages don't rise.

Luckily they are all covered by cunning derivatives contracts that pay out in case of default. :lol:

Share this post


Link to post
Share on other sites

Neither.

If the BoE raise rates, the mortgage lenders will lower them to suck more people into their game. Most people don't yet get what is happening, this is not the way things were anymore. Anybody who thinks we're getting back to the norm is clutching at straws. The boat is just wobbling backwards and forwards with one crisis after another.

There is no way out for banks. They have over-leveraged themselves to ridiculous levels and now can never re-capitalise. There is simply not enough money in the world for the interest to be paid on all the debt they have created unless governments print money stratospherically which would just wipe out most of the population if their wages don't rise.

I posted few days ago that Irish Banks are raising interest rates by upto 0.6% even though there has not been any increases by European Central Bank, it has long been understood that there is no direct relation between Central Banks and banks mortgage rates, they could change as they please & this is exactly what's happening in Ireland & could happen here. As Banks profit margins are squeezed, they will turn to their existing client who lets face it have been benefiting historically low rates. There iis no more easy monies to be given irresponsibily. Lets wait & see what happens. Some experts are also predicting the whole system collapse, which make all these irrelevant!!!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.