FTB's vs interest rate rises

H

Howitzer

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A question to any FTB's who have purchased within the last 6 months or who are closing soon. Have recent rising interest rates, and the prospect of further increases (another in May/Jume, 3-3.5 by year end) had any impact on your outlook or indeed your pocket?

I'm in the process of becoming a fully fledged FTB and there seems to be a huge sense of bravado at the moment with regard to property prices and the prospects for 'guaranteed' price increases in the future. The prospect of taking on 300K, 400K, even 500K mortgages, is seen as a badge of honour rather than a milestone.
 
As a FTB last May I worked out how much I could afford based on current ECB rates back then (2%) and added 1% on to that so I know I am comfortable enough with a 3% base ECB rate as is expected by the end of the year. If it goes to a base 4% or 5% then I will probably rent out a room.

The interest rate rises dont really concern me much unless we start moving to a base ECB rate greater than 5%.

I'd assume most FTB's have calculated the effects of an increase in rates on their mortgage payments when they first took out the mortgage. But maybe not!
 
Yes same here...Had to contemplate the effect of a raise in interest rates to ensure that I still had room to move... I can't believe the rate of increase in prices, just in the last six months. Its astounding and the demand continues...

I watch similar properties in the area sell for higher prices and inwardly congratulate myself and then inwardly argue with myself for feeling that way! At the end of the day I bought a home, I needed somewhere to live so even if the prices take a dip later in the year I still have a home and with any luck I'll still have a job that pays the mortgage!
 
Howitzer said:
there seems to be a huge sense of bravado at the moment with regard to property prices and the prospects for 'guaranteed' price increases in the future.
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When discussing the stages of economic boom-bust-cycles, what you describe is often referred to as 'euphoria'.
 
Lauren said:
At the end of the day I bought a home, I needed somewhere to live
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Well we all need somewhere to live. You can either buy outright, take out a mortgage, or rent. Lauren, assuming no.1 wasnt possible, did you consider renting?

My situation is I live in a very nice terraced house in south city centre on a nice street, I pay about 60% of what a conventional mortgage would cost me to live there, I get to keep my deposit (to invest as I like), I walk to work (8:20am wake ups), the owner is very obliging and is happy to have me for as long as I like, and I have way more money left each month to invest/save than if I were paying down a mortgage.

I can't for the life of me see why I should buy a similar place to the one I'm living in, let alone move out to the suburbs??
 
Yes I considered renting and I even considered converting an attic in my mothers place! (scarey thought)...However, given I'd spent the previous nine years in Australia renting I decided to take the leap into home ownership even though I knew it would cost me more here in Ireland...I'm lucky enough to have a reasonably paid career with good future prospects..

The apartment I bought is close to town, a very easy 10 minute bus commute...Its equidistant from all close family members too! PLUS I can paint the whole thing purple with yellow spots if I want to!
 
i think ftb's on AAM are more informed and aware of the interest rate situation than most ftb's.
 
bearishbull said:
i think ftb's on AAM are more informed and aware of the interest rate situation than most ftb's.
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Yeah, I'd have to agree with that. Was hoping that by specifically asking only FTB's who've bought in the last 6 months or about to close, that I'd hear from those people who really are on the margin.
 
We were looking like we were going to jump in toward the end of last year. However, I had just moved jobs and the 100% mortgage was not approved.
In hindsight I'm glad now. I think me and my partner were spiralling a little out control in terms of how much we would pay (i.e anything to get a roof of our own over our heads). When the 'dream' came apart at the seams, it gave us a nice breather to consider what we were doing. And this made us realise that we were committing, like another poster said to 300, 400,500K for pretty much the rest of our lives. Unlike our parents, we were nailing ourselves to the cross to get a foot on the ladder. And then it started to not look so attractive.
So, now, along with looking at building in a side garden we're content to rent stress free for a while
 
I bought my first property last May/June, which is nearly 8 months.

At the time of purchase I was completely aware of (then) looming interest rate hikes, and knew its likely to go up by 1pc by end of 2006. That probably was a wishful thinking as well, as we don't know how far its going to go.

Being single and of modest spending habits (at the moment anyway), I was (still am) confident that I would be able to set aside upto 50% of my income to pay off the mortgage (its about 40% now). I have also compromised my luxury by renting out a room, income from that covers about 30% of the monthly payments for now.

I believe I am okay if the rates going up and if it goes up to 3% ECB, but if it goes around say 3.5% etc I would really be worried. Keeping the same in mind, I am not considering the fact that similar houses are already selling 50K up from what I paid, beause its like others said, not real at the moment.
 
Trichet's comments today indicate a May increase is on the cards, which I felt meant 3.5% by December, or at least the option of bringing rates to 3.5%.
 
moneypitt said:
I believe I am okay if the rates going up and if it goes up to 3% ECB, but if it goes around say 3.5% etc I would really be worried.
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I find it interesting that you are worried about what would be a relatively modest rise in interest rates. I don't want to sound alarmist, but "reports" indicate that 3.5% is almost a certainty by 2007 at latest. And you have to remember that that is only restoring rates to a "normal" position, they may go higher than that if a recovery picks up steam.

Just as a matter of interest, how hard did the bank stress-test your repayment ability?
 

As a FTB of 2.5 yrs I would have no problem meeting repayments on an interest rate hike of 2% from current levels. However, I think if interest rates reach 3.5% before the end of the year a lot of people will start to become a little nervous as the rate hike will have been faster than expected. If Germany continues on the road to recovery and if eurozone inflation doesn't slacken then we could easily see 4% by mid-2007.

 
Howitzer said:
Trichet's comments today indicate a May increase is on the cards, which I felt meant 3.5% by December, or at least the option of bringing rates to 3.5%.
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Which comments were these..? I did cast my eye over the interview with him published on the ECB website today (I didnt see him saying anything new to be honest) and I havent seen anything else come across the newswires..?
 
soma said:
Which comments were these..? I did cast my eye over the interview with him published on the ECB website today (I didnt see him saying anything new to be honest) and I havent seen anything else come across the newswires..?
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Trichet did say that the ECB would act to counter inflation risks even though it has raised rates in December and March, which is taken that they will continue to raise rates if needed so as to counter inflation.
 
hmmm said:
Just as a matter of interest, how hard did the bank stress-test your repayment ability?
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Not sure!

To give you the figures, I an 29 and earn 50K a year, which works out around 2600 euros take home per month, after max AVC to pension etc. I don’t have any other loans and had a saving of about 40K liquid at that stage (saved over five years). The bank (FA) approved me 253K for over 40 years (Ouch!!), which works out around 1000 pm on mortgage payments. With or without a tenant, its affordable at the moment, and it will be even if it goes up say another 300 euros. After which (ECB 4% and above) my bed would turn very uncomfortable!
If the market remains buoyant for another year (at the current rate), I might get a better interest rate with mortgage < 60% of value of the property, but thats not my plan A.
 
I think it's unethical the way the banks are lending people money. I did a semi-survey of some of the people i work with and found only 2 out of 15 truly understood what the ecb base interest rate meant to their repayments. Several told me that their mortagage brokers told them how to switch loans out of their name, borrow from the credit union for depoist etc. I didn't bother asking them about stress testing, but I found that even the older ones (i'm only 24) had irrational ways of justifying they're borrowing, such as one who told me their house could be sold for 20% more than when they brought it so leverage that to buy an SUV. We're all fooling ourselves with this "if the base rate stays below 5% I'm safe" argument. Stays below 5% for how long 1 year, 5 years? Most first time buyers are getting 30+ year mortagages, and they're stretching themselves by hiding debt and borrowing for depoists while the base rate is as low as it's going to be ever!!!!!
 
sonandheir said:
I did a semi-survey of some of the people i work with and found only 2 out of 15 truly understood what the ecb base interest rate meant to their repayments.
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Have to agree with the previous post, a colleague of mine is looking to buy now and I asked her what she would do if interest rates went up by 1%, would it influence the amount they would borrow etc. This questioning was met with a shrug of the shoulders!!!!!!
 
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