Feeling slightly smug of late...
Reading articles like this one...
Families face a £1,300 annual increase in their mortgage payments after the country's biggest building society announced a rise in its lending rates.
Here's why I'm feeling smug...
Four years ago, when we began formulating how much money we could afford to borrow to purchase a house, I calculated how much we could afford to pay, at the time, as a monthly payment even if interest rates went up to 10%.
Based upon that number, that's what we had in mind as the cap to the size of our mortgage.
We also made the unorthodox decision to buy a larger house and share it (live in it) with my wife's parents.
When it came time to apply for the mortgage, we locked into a ten-year fixed rate at 4.89% on the amount of money we thought we could afford to borrow even if we had to pay as high as 10% at some future date. Which was half the value of the house we purchased with the in-laws.
And more than a few acquaintances thought we were completely nuts on both counts - living with the in-laws and locking into a 10-year fixed rate.
Although it took some adjustment, living with the in-laws has turned out to be one of the best decisions we could have made, especially for our daughter.
And locking into a 10-year fixed rate was another prudent thing to do; and a few people thought we were even nuttier for doing this.
For some of these people, their lifestyle and spending decisions were predicated upon eternal rising house prices and low interest rates with the ability to remortgage cheaply every two years or so. I imagine this is fairly representative of a large part of the population. People bought houses on the basis of how much they were allowed to borrow and not on the basis of how much they could actually afford. And many of them also bought with self-certifying mortgages, so they could stretch the truth a bit about their actual incomes.
Okay, so now house prices are going to take a temporary dip while the market sorts itself out. But unless something's done about wholesale immigration to the UK or major land use reform, housing prices, at least here in the South East of England, are going to remain rather buoyant. (If I had known the full extent of immigration to this country, I would have bought back in 1999 or 2000, when I could have afforded it even better, on a contractor's income.)
I have a real problem with the moral hazard being created by the various plans for bailing people out that politicians keep alluding to. This may sound smug and "uncaring" but I say let the chips fall where they may.
Borrowing money for a house far into the six digits is the most important financial decision any one is going to make in their lives. There are plenty of free places to find all the information you're ever going to need, to look at it from all angles.
If an increase to the interest rates adds a little over £100 to your monthly mortgage bill, and this is unaffordable, it was you that borrowed too much money. It's not the fault of the "greedy" banks and mortgage companies, as many of the news stories of late would have you believe.
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