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If interest rates go up by 4 percent how would that affect you?

(83 Posts)
redhat Thu 07-Jan-16 14:16:02

Ive just been reading on the BBC website that 2016 is predicted to be one of the toughest economically since the financial crisis.

I know that when interest rates go up - potentially later this year, this is likely to be done very gradually but historically interest rates of 4.5 percent are not at all unusual.

We are throwing everything at our mortgage at the moment to try to clear it as soon as we can. We're on a decent rate but the mortgage debt is high.

If interest rates went up by 2 percent or even 4 percent how would that affect you?

redhat Thu 07-Jan-16 14:26:52

I'm obviously the only one who remembers and frets about astronomical interest rates grin

RJnomore1 Thu 07-Jan-16 14:31:17

We'd be fine. Little less disposable income obviously but not a major hit.

At 12% we would feel it but cope.

sleepyhead Thu 07-Jan-16 14:34:16

Every 2% increase would cost us around £100 per month more so not fabulous, but not completely disastrous.

We've got 2 more years before ds2 goes to school and our childcare costs drop by £550 per month so things should smooth out over the piece, plus rise in mortgage rates generally means rise in inflation, generally means higher wages.

Eg, high mortgage rates in the 80s/90s were offset by wage inflation which made the cost of the mortgage feel smaller in the long run.

redhat Thu 07-Jan-16 14:36:18

12% would be scary to lots of people I'm sure.

Viviennemary Thu 07-Jan-16 14:41:45

It wouldn't affect us much as we've paid off our mortgage. Yay!! But I think a big rise all of a sudden would be bad as many people will be in difficulty. The thing is because they have been so low for so long people have got used to that. So a rise will be a big shock. We never took out a huge mortgage as we were too scared the rates would go high and we wouldn't afford the repayments.

hugoagogo Thu 07-Jan-16 14:42:41

We were paying 7.5 % when we bought the house, so we will be fine.

I feel for people who have large mortgages, we are only in a good position through sheer luck, really.

Although we were at least sensible enough not to add debt for home improvements to our mortgage at the beginning of the 21st century like some of our friends did.

Cloudybutwarm Thu 07-Jan-16 14:44:03

We only got our first mortgage when rates were already low so have never experienced anything else. We obviously had a think about what would happen if/when they went up a lot and we could afford it but would certainly have to dial down our lifestyle (holidays/eating out etc)

NewYearNewName16 Thu 07-Jan-16 14:49:13

I'd love it....particularly if inflation remains as is.

RJnomore1 Thu 07-Jan-16 14:53:00

I doubt they will go to 12% again but I'm sure I remember that - late 80s early 90s? And I've always tested our repayments against at least 10% before we took anything on. I suppose we should really be overpaying now but hey it's all good eh.

vickibee Thu 07-Jan-16 14:54:16

we are on a fixed rate unitl Dec2018 so would not affect us until 2019.

redhat Thu 07-Jan-16 15:31:01

12% would certainly mean we were no longer overpaying our mortgage!

Ethelswith Thu 07-Jan-16 15:35:49

When I first bought a property, interest rates were 14%.

4.5% really isn't astronomical. We have things set up so we'll be OK on that, and somewhat higher.

It'll be really good for anyone dependent on investment income, and who hopes to have a pension pot which grows.

But, how to balance the family budget will also be influenced by the inflation rate and whether it erodes debt.

annielostit Thu 07-Jan-16 15:42:08

We've got 12 months left on ours. So hoping they stay low for the time being.
It's like going back to the 80's some people are going to be hard hit with this. I remember a friend having 15% rate. Ouch!!

MyFavouriteClintonisGeorge Thu 07-Jan-16 15:45:12

We fixed recently in the expectation rates would go up, so we would be insulated from it for a good while.

I remember my Career Development loan, many many years ago, was 1% above base rate. It topped out at 16%. It was so crippling I had to move back in with my parents until it was paid off. But on the other hand, I bought my first flat at a very good price from someone who could not afford to keep it when interest rates soared.

wonkylegs Thu 07-Jan-16 15:49:35

We're on a fixed rate for next 3 years so we'd have a while to adjust on our mortgage, even then it would be ok as we have a bond maturing about then so we can pay off a chunk and reduce our payments anyway.

zombiesarecoming Thu 07-Jan-16 16:03:12

We would be well and truly shafted if they get too high

Currently overpaying as much as we can manage and could take a few rises before things caught up with us but have a high interest only and no hope of remortgaging as all the rules and regs for self employed have changed since we took it out

If they only rise slowly and the economy doesn't stall and we keep busy then we may manage better than we think but it is still a scary thought

IAmAPaleontologist Thu 07-Jan-16 16:15:21

Our mortgage is fixed so not really an issue for us, if it meant we could actually earn some interest on our savings then it might be nice!

NotCitrus Thu 07-Jan-16 16:17:28

Just played with the MSE mortgage calculator. Would mean an extra £100/month for every % rise. Probably OK for 2% above our current fix which has 2 years to go, but will need to consider overpayments ASAP. I'm about to be made redundant with a generous deal, so having never made any overpayments since dcs were born, it might be best to throw most of the cash at the mortgage term, having checked that we could re-borrow some if needed.

Worst case would involve a permanent lodger again and possibly a second one. Even a third if rates hit 80s levels, but in that case so many people would be so much worse off, that we wouldn't be anywhere near first in line for reposession as the banks wouldn't want that many unsellable houses!

megletthesecond Thu 07-Jan-16 16:19:45

This has reminded me I can't remember when my fixed rate ends. Must check tonight.

ClaraLane Thu 07-Jan-16 16:23:32

Our fixed rate doesn't end until July 2019 and we've currently got about £500/month spare which is going towards our wedding in September. After the wedding we're planning on using that money to save up for maternity leave in 2018 so if the interest rate went up I think we would probably have to put off having children as we wouldn't be able to afford my drop in wages (main breadwinner) plus increased mortgage cost in 2019. It's quite sobering to think about really.

specialsubject Thu 07-Jan-16 18:22:57

I remember mortgage rates of 12% or more. It isn't that long ago.

if interest rates went up I'd love it, and so would all the other people who saved and are currently watching their money disappear.

clara do you have an emergency six months fund? This is FAR more important than the frilly-frock party. No-one has a secure job. No-one is immune from getting ill or having an accident.

ClaraLane Thu 07-Jan-16 19:52:21

special No we don't but we can pay all of our bills on one income, we would just have very little left over for "luxuries" eg Sky and mobile phone bills. We also have a credit card that will be paid off in May (0% interest) and the money from that plus my pay rise this month is all being diverted to a savings account that's got nothing to do with the wedding. I say we're saving for maternity leave but really it will just be a general savings pool with the aim of keeping us safe if the shit hits the fan.

LittleMissStubborn Thu 07-Jan-16 21:11:21

We would manage, it would probably still be less than it was when we first took it out 14yrs ago as we have a tracker so have benefited from the drop in interest rates since then.

I would consider paying the remainder off if it went much higher than that.

Shannaratiger Thu 07-Jan-16 21:14:30

Great, we don't have a mortage and might get some decent money on our savings!

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