Mortgage Rate Rises

flea.rider said:
so what your saying is ...if you haven't got it don't spend it except for things like a car or house ..live within your means .. age old saying that got lost at some point ..
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Not exactly, that's a different discussion. I'm saying if you HAVE got it, then spend it before building your debts. Don't increase debt whilst maintaining savings if it is more efficient to reduce savings instead (which it usually is).
 
HangTime said:
I have my views on this but I appreciate others may think differently.

The way I operate is that [nearly] all of my finances are just nebulous, part of the same thing. So I don't have a budget for different things, I just have one generic 'pot' of money even if it is stored in different places. One month I might spent £500 another month I might spend £5k and that money isn't assigned to any purpose until it is spent. To put it another way, the "intended use" for savings is constantly evolving. You never know what the future will bring, you might think that today that money is going towards a holiday but if the washing machine breaks down next week maybe that's no longer the priority for that money.

One of the common fallacies (again, from my personal perspective) I see is people who are taking out debts that are more expensive than funds they already have available. In your case buying a washing machine on credit only makes sense if the interest rate charged is less than you get on savings (unlikely unless you pay it off straight away). The message I struggle to get across to people is that by doing this, they will have LESS savings in the long term, because the cost of servicing that debt will impact on their ability to build savings. So if you buy a washing machine for £500 on savings instead of credit then yes tomorrow you have £500 less savings. But in a couple of years time your savings should be bigger than had you bought the washing machine on credit because you will have spent more than £500 plus savings interest on that washing machine due to the higher interest rates on the debt.
It's a similar equation with people paying for insurance monthly, to me it makes no sense if they can pay it annually and avoid the interest, as after 1 year they will have more money than had they paid it monthly (unless they have a good investment vehicle for the capital, obviously).
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We are not in disagreement. If I'd use a credit card (very very infrequently) I'd pay it off straight away, unless some massive emergency happened and I had to put something on a card.

I was just giving examples of what may have caused the result of the report.
 
HangTime said:
Note you need to be disciplined here. If you are the type of person who will decide to cash in their ISA and go to Vegas for the weekend then this approach may not be the best, the idea is this money is being set aside in lieu of overpaying the mortgage because after 10 years you can simply pay off the remaining balance and have more money left than had you overpaid the mortgage.
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I think this is the crux of why most people don't adopt your approach. The temptation is too high and discipline is lacking. While of course you can unlock equity I think most people think of overpayments as money that becomes inaccessible and thus temptation removed.
 
There are some other factors in regards building savings as opposed to paying down the mortgage.
They add to the complexity and are situationally different for different people.

1) is redundancy/benefits. If you have too much savings you will be less entitled to the meagre support you can get. Its fine if your the sort that will walk into another job, but if not and you have too much in savings you will get less support that if you had limited savings.
Overpaying the mortgage (especially if you can later use this to make no repayments) means you can be quite a lot better off without having savings sitting there the HMG will ask you to use first.

2) Is its all well and good saving but you need to be able to pay that down against the mortgage. There will be limits to most mortgages and if interest rates fall on investments you may want to pay a big chunk off that you have saved but cannot due to limits on what you can repay without penalty.
This one would mainly be dictated by terms of your mortgage and what your saving compared to what you can pay off, along with of course how long your penalties apply for. Short mortgages wont have your hands tied for as long.
 
I have a savings account that gives me over 6% APR, and a mortgage with a 2.09% rate. I'm putting any spare cash into that savings and towards the end of my 10 year rate I will dump that savings at 6% into the mortgage.

I am able to pay £15k a year over without any penalties on my mortgages, so if/when my savings get to £15k just dump some into the mortgage for that year.
 
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......and the mortgage lender I work for have started making people redundant.

Admittedly only a few, and more or less bottom of the food chain but can't help think this is the start of worse to come.

Since December we've had basically no volume of applications and only the last month picked up to maybe......20% of normal volume.

Not just us either looking at the stats for some of the bigger ones, the trend is the same.

That, whatever her name was, prime minister that lasted about 15 minutes did a lot of damage and the silicon valley bank hasn't helped.

But the main problem is how everything is being stressed, stress rates were all setup to provide.... I forget the term used*, which was fine when rates were really low, but now the actual rates are high, when you add the stress rates on top nothing is fitting.

Particularly bad for buy to let.



EDIT: *Resilience
 
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Yup and today several smaller specialist lenders have all pulled their rates (including us) because swap rates are soaring again.

Honestly I'll be out of a job in 6 months if things dont improve and there is nothing to indicate it will.
 
BUDFORCE said:
......and the mortgage lender I work for have started making people redundant.

Admittedly only a few, and more or less bottom of the food chain but can't help think this is the start of worse to come.

Since December we've had basically no volume of applications and only the last month picked up to maybe......20% of normal volume.

Not just us either looking at the stats for some of the bigger ones, the trend is the same.

That, whatever her name was, prime minister that lasted about 15 minutes did a lot of damage and the silicon valley bank hasn't helped.

But the main problem is how everything is being stressed, stress rates were all setup to provide.... I forget the term used*, which was fine when rates were really low, but now the actual rates are high, when you add the stress rates on top nothing is fitting.

Particularly bad for buy to let.



EDIT: *Resilience
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Cheap repo's coming in the next couple of years and the government were fooling everyone that it was all going to be better by Christmas.
 
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