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Mortgage Alert For Families On Variable Rates: Eight Million Could See Payments Rocket

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http://www.dailymail.co.uk/news/article-1339310/Mortgage-alert-families-floating-rates-Eight-million-payments-rocket.html

Millions of households face mortgage misery in 2011 because they are vulnerable to higher interest rates, the Bank of England warns today.

Hard-pressed families could be hit by rapid rises in borrowing costs at a time when they are already struggling to make ends meet.

In its twice-yearly financial stability report, the Bank warns that growing numbers of homeowners are at risk because they have moved off fixed-rate mortgages.

Two-thirds of the country’s 12million outstanding mortgages – held by eight million borrowers – are now on floating deals.

This means they risk seeing their monthly repayments jump if there is any change in the Bank’s base rate – which is currently held at 0.5 per cent.

An increase in rates from 0.5 per cent to 1 per cent would push up the cost of the average £150,000 mortgage by £43 a month or £516 a year.

The Bank is worried because many months of rock-bottom rates have tempted millions of families to opt for a variable rate when their fixed rate expired.

But the Bank says today: ‘This exposes more households to the risk of increases in interest rates.’

Or another way to look at it is 8m people are holding a gun to the BoE head asking "do you feel lucky punk?"

Mystic Merv now has a nightmare on his hand with all of these people on variable he now has to calculate can people afford an increase, if not how many will fail to pay and will this be sufficient to bring down the banks. To add into the mix taking this money out of the economy will affect aggregate demand. It would appear that the geniuses at the BoE have got themselves in between a rock and a hard place, especially if you factor in inflation getting out of control.

Still at least it's all contained.

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A warning in preparation of next years base rate rises? :)

The BOE didn't care about these households in early 90s when the went to 15%, house prices dropped significantly and no (major) banks went bust. Why should they be thinking any different this time? And we're talking about rates returning to normal or more likely still sub normal levels not abnormally high rates.

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A warning in preparation of next years base rate rises? :)

The BOE didn't care about these households in early 90s when the went to 15%, house prices dropped significantly and no (major) banks went bust. Why should they be thinking any different this time? And we're talking about rates returning to normal or more likely still sub normal levels not abnormally high rates.

The only difference this time is the size of debt owed in the debt bubble and in the early 90's I don't recall any major bank getting a bailout before house prices dropped. Clearly the BoE is correct in using what happened in the 90's to predict what will happen now.

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if not how many will fail to pay and will this be sufficient to bring down the banks.

Why don't we just do it and see what happens?

Personal view is that people who have practiced restraint - a lot of people on here - deserve to be able to use their savings and borrowing capacity to hoover up repos from the reckless and generally enjoy lower house prices.

HPC/mass default won't collapse the banking system - but it will destroy the weak ones.

The strong ones will rebound quickly with less competition and become immensely powerful which I admit is a bit of a worry.

We should let a couple of banks collapse finally calling their bluff and putting the b*stards in their place - as humble servants.

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They knew they were getting into this rock/hard place situation in 2002 when Chancellor Gordon Brown announced that he was looking at moving all mortgages over to fixed-for-life like the Americans (then) had. Of course he never actually implemented that idea and now we're screwed - need higher rates to stop inflation but it would bankrupt half the nation if rates were put up.

They knew the crunch was coming - they did nothing. I never tire of applauding this fellow: David Clementi

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A warning in preparation of next years base rate rises? :)

The BOE didn't care about these households in early 90s when the went to 15%, house prices dropped significantly and no (major) banks went bust. Why should they be thinking any different this time? And we're talking about rates returning to normal or more likely still sub normal levels not abnormally high rates.

To be fair, the BoE weren't in charge of interest rates then (and you could argue that the government wasn't either). You could also argue that no banks went bust because they held a lot more capital back then and were better regulated.

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this is just the effect of kicking the can down the road...

now we are approaching the can again, though it is full of lead and gunpowder now.

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The latest Financial Stability Report contains plenty of interesting charts and info.

http://www.bankofengland.co.uk/publications/fsr/2010/fsrfull1012.pdf

One chart shows the effect on relative household income gearing if Bank Rate goes to 5% and spreads remain elevated compared to the 1999-2003 average. It would be worse than in 1990.

fsr1210b.gif

Some selected charts:

fsr1210a.gif

fsr1210c.gif

fsr1210d.gif

fsr1210e.gif

fsr1210f.gif

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Given the difference between their mortgage/credit card rates and their saving rates banks should be capitalising loads right now (and I think they are).

They just need to ratchet up the interest rates incrementally such that they don't end up putting everyone in the red at the same time, they must do it gradually.

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Given the difference between their mortgage/credit card rates and their saving rates banks should be capitalising loads right now (and I think they are).

They just need to ratchet up the interest rates incrementally such that they don't end up putting everyone in the red at the same time, they must do it gradually.

It is OK, I've studied economics I can tell you exactly what will happen next.

Because the banking world is the ultimate free market then lots of new banks will open up with a smaller margin between the savings and lending rates. Customers will move their accounts to the new banks and the shareholders of the existing high margin banks will lose out whilst the customers will benefit.

Unless Economics text books are pseudo-science based on a world that has never existed I should be proven correct.

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It is OK, I've studied economics I can tell you exactly what will happen next.

Because the banking world is the ultimate free market then lots of new banks will open up with a smaller margin between the savings and lending rates. Customers will move their accounts to the new banks and the shareholders of the existing high margin banks will lose out whilst the customers will benefit.

Unless Economics text books are pseudo-science based on a world that has never existed I should be proven correct.

:lol::lol::lol:

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This is outrageous! The banks can't this! What if this means that their mortgage repayments become unaffordable?

The government must step in and make up the shortfall by introducing a tax on people who rent, this is after all supposed to be a fair society.

I rent, and knowing my place in societies pecking order, will gladly pay more tax to keep these hard working families in their homes.

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The only difference this time is the size of debt owed in the debt bubble and in the early 90's I don't recall any major bank getting a bailout before house prices dropped. Clearly the BoE is correct in using what happened in the 90's to predict what will happen now.

+1

The low base rate is to protect the banks and allow them to recapitalise.

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This report sounds like it has been done in conjuction with the Bank of England, who are surreptiously warning of rises in mortgage rates.

Profits for banks are determined by the difference between market rates of interest, and what they can charge for their mortgages. They are in a bit of a bind as market rates of interest have been rising, whilst the Bank of England base rate has stayed put. With so many mortgages linked to the BofE base rate, banks profitability is being wiped out.

Banks need to make profits to be able to borrow off of others. If they lose money by lending out at below market rates of interest, they go up in a puff of smoke.

So the BofE are going to be forced to raise the base rate next year to keep the banks afloat, unless of course, the bond market backs off. With the government unable to control the deficit, any backing off by the bond market is only going to be a temporary respite.

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(...) Or another way to look at it is 8m people are holding a gun to the BoE head asking "do you feel lucky punk?" (...)

Yep I had the same thought here.

But there may be a solution. The Bank could increase the base rate by just 0.25 in the next meeting, and then stay at 0.75 for a few months. Nobody would be able to accuse the bank for bankrupting "families" with such a small increase.

They could even give more warnings then that the next trend should be upwards. And then they could repeat these 0.25% increases every 3 or 4 months, giving plenty of time for responsible people to adapt to it, by downgrading, or STR, etc.

.

Edited by Tired of Waiting

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This report sounds like it has been done in conjuction with the Bank of England, who are surreptiously warning of rises in mortgage rates.

(...)

If you are referring to the report mentioned in the news linked by the OP, this was an official report by the BoE

"Bank of England warns today (...) In its twice-yearly financial stability report"

http://www.dailymail.co.uk/news/article-1339310/Mortgage-alert-families-variable-rates-Eight-million-payments-rocket.html#ixzz18MbQ0rSd

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Yep I had the same thought here.

But there may be a solution. The Bank could increase the base rate by just 0.25 in the next meeting, and then stay at 0.75 for a few months. Nobody would be able to accuse the bank for bankrupting "families" with such a small increase.

They could even give more warnings then that the next trend should be upwards. And then they could repeat these 0.25% increases every 3 or 4 months, giving plenty of time for responsible people to adapt to it, by downgrading, or STR, etc.

Indeed - which is what Sentence has been arguing for these last 6months, suggesting that a slow stable approach to the inevitable increases would be more sensible than a sharp shock

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This is outrageous! The banks can't this! What if this means that their mortgage repayments become unaffordable?

The government must step in and make up the shortfall by introducing a tax on people who rent, this is after all supposed to be a fair society.

I rent, and knowing my place in societies pecking order, will gladly pay more tax to keep these hard working families in their homes.

The problem is not with those that are working. The increasing number of unemployed with mortgages are the banks and govts biggest headache.

Can't pay, won't pay scenario? Or how bad will it look when Panorama and C4 do documentaries showing cardboard cities all over the country just months before elections (local and/or national) ? :ph34r:

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Is this really mortgage misery?

An increase in rates from 0.5 per cent to 1 per cent would push up the cost of the average £150,000 mortgage by £43 a month or £516 a year

If households cannot absorb £516 then they are already bankrupt. What does it really mean: getting rid of the mobile phone, not going on holiday, using supermarket coupons, giving up cigarettes or not going out down the pub so often. Big deal. This isn't mortgage misery.

Edited by Xurbia

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  • 276 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%



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