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

[redhat]

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?

We paid our mortgage off and save lots now so it would be extra savings interest.

I just did some playing with the MSE calculator too, I put in what we originally borrowed, over the same 25 years and at a rate of 12% I would pay double the original mortgage in interest alone.

At 4% we would no longer be overpaying our mortgage, or not by very much. We would either have to increase what we pay, or plan to sell and downsize when the mortgage expires in 2026 if we hadn't paid it off.

Fwiw I think it'll be a loooong time before interest rates get to 4%.

Personally, we'd be better off, as we've paid off our mortgage and are beginning to think about retirement and getting a better return for our savings. But DD is just about to buy a house and would probably be badly hit, and it would put house owning even further out of DS's reach - he works in London and doesn't see much prospect of ever being able to buy.

It would be another £300 a month which would be fine

I remember rates of 15% too

cheers for the reply clara - if only everyone was as sensible!

I can't see rates shooting up to 14% quickly, and savings rates will rise at a glacial rate. But you can bet mortgages will rocket.

We are fixed for another 3 years and are overpaying so hoping to have it paid off by the time the 5 year fix ends.

Bear in mind that when base rates were higher, the margin charged by banks was lower - at the moment base rate is 0.5 percent but a five-year fix is about 2.2 percent, so a 1.7 percent margin, whereas pre-crisis the gap was about 0.5 percent. So mortgages may not rocket. I can't see any reason why interest rates will rise significantly apart from wishful thinking by George Osborne - the economy is slowing, faces lots of problems, and there's no inflation.

I dont have a mortgage and the interest I would get on my savings would increase nearly 5 times.

I did want to get a mortgage though and so this will make it harder.

Our tiny mortgage is paid off, so no problem, there.

However, making the move into a much neded bigger house that we can do when DS2 finishes primary school will be harder.

Half ours is fixed so that's OK and we are overpaying as much as we can. The other is variable but we could absorb a fair increase if we had to. We have some savings so could pay some more off to defray the increase.
We're lucky enough not to be stretched to our limit on a tiny house thankfully because we got into the housing market before the insanity.

I have no debts so it wouldn't affect me, but I surely there would be carnage amoungst the over-leveraged, who are legion

It might make it worth overpaying the mortgage. I'm sort of itching to overpay and pay it off but when the interest rate is less than 1% pa and I can get 3-5% on savings in current accounts I'm profiting but saving instead. We are very fortunate.

Interest rate was over 5% when we took it out and we earn more now than then anyway so we'd probably manage unless they went over 10%, which hasn't been the case in the last 25 years.

I don't think interest rates will go anywhere near that high again because even modest rises will totally fuck the economy due to personal and business debt. Lots of businesses have debt that is linked to base rates so everything is currently being propped up by low interest rates.

I think we would be ok. Mortgage is fixed till end of 2017 and by beginning of 2017 my daughters childcare costs will have massively reduced, so there will be some time to overpay more. That was my plan when I got the mortgage

It might make us decide to rethink our plans to move to a bigger house though. And I guess if lots of people think like that it will have an impact on house values

Also agree with barbara

We might be in a position to save some money.

Way back in 2003 when the bank was offering to lend us 5x our salaries I remembered my parents 12% rate in the 90's and thankfully decided to go with the smaller, cheaper house and lower mortgage.

We'll be over the worst of childcare costs by Sept when DD starts school, so thankfully we can take the hit when it comes... we're only two years into 25 year term though, once both kids are in school we'll be overpaying as much as we can. At the moment it's a struggle at times and accordingly there will be no more babies which does make me sad but heigh ho...

My savings would earn money - great!

It might affect my choices when thinking about buying, but at the moment I have no mortgage so if I stay renting it would only make me better off.

The Central banks (i.e Federal Reserve, ECB, Bank of Japan, Bank of England) will only raise interest rates significantly if they see inflation picking up above 2%.

The certainly want to 'normalise' base rates from historic lows of nearly zero to a more neutral rate of around 2% which means mortgage rates will be a few percentage points above what they are now by the end of 2017 but not much more.

Central banks know that if they raise rates too much they will crush consumer spending because everyone will be struggling to pay mortgages. Businesses which have also taken on a lot of debt in the last few years will be making losses and cutting staff numbers and investment.

The impact of interest rates on an economy that has a lot of debt in it like the UK is significant. All those £100 - 200 figures people are quoting on the thread will mean that very quickly there will be an impact on thing like fewer restaurant meals and luxury purchases being made, less people buying new kitchens, new clothes, cars. Essential spend will be less impacted but fewer restaurant meals mean fewer jobs for serving staff, bar staff. Fewer clothes being bought means less shop staff.

In the financial markets, the threat of higher interest rates has already caused stock markets to fall. It has been the worst start to a new year in the global stock market - ever! The last 4 days have been turmoil. These big falls in share prices have occurred after a single 0.25% interest rate rise by the Federal Reserve.

In the real economy container freight traffic has collapsed as have bulk shipping rates. Commodity prices have collapsed in the last year and the world is clearly already in the grip of a rapid slow down coming mainly out of Asia and other Emerging economies.

As a result, I do not expect large interest rate rises - Central Banks have no need to.

Presumably renting becomes harder too though as landlords would/could be affected by rate rises and default/put up rents and try to sell?

We have a portion of our mortgage fixed till 2020, and overpay on the remainder (have done for years so have a built in option of underpaying for years too) and our LTV is pretty low so think we could ride it out hopefully. We were v lucky in getting a tracker 8 years ago and buying the house after the fall in prices. None if it was planned but has worked out well for us.

We overpay at the moment so we'd have to stop doing that, and cut back on discretionary spending and savings, but we'd be fine in terms of essentials. I'm due to return to work soon this year so I might return earlier. Our mortgage is very high as it's in London but it's not a big percentage of our income.

I can see it would have a strange affect on rentals. No landlord will lose money so that leaves putting up rent or selling.
You could only put rent up by the amount the markets dictate. So it may be the mortgage is £1800 a month but rent £1500. No one will sustain that loss for long.
So they would sell, which would mean there would be less rentals so it maybe it would push the rent price up????

an influx of ex rentals on the market may push house prices down. I just hope the council is ready to rehouse those that can't buy.

1 year into a 5 year fix so wouldn't be affected for a while, and would hope that wage increases over that period would more than offset a rate rise.