Interest Rates.

Have we all just got used to a relatively low period of interest rates

Yes, rates have been crazily low for years now

and media creating ‘panic’?

It's not panic. If you've taken out a mortgage that you've deemed to be affordable on the basis of the rate it was at when you took it out, and when you come to remortgage the rates are much higher, then that's a real problem, not media panic.

The difference between now and the 70s/80s (and I remember my folks struggling with a 15% rate in the 80s) is that back then pretty much everyone was on a simple variable rate mortgage, so when base rates went up, your mortgage went up pretty much straightaway. Most people now are on fixed rate deals, so there's a bit of a buffer in the system as they're not affected immediately by the rate change. But, when they come to the end of the deal and have to remortgage, they're hit with a bigger hike in one go,

Have we all just got used to a relatively low period of interest rates

Yes.

And while many of us are careful and conservative in our borrowing, the few who have extended as much as they can either through necessity (see: silly house prices for first time buyers) or through choice face a very painful period of adjustment to the new cost reality.

Even those who are conservative in financial decisions and/or fortunate enough to have 'room to breathe' financially will see a reduction in spending beyond food on the table or roof over their head.

Even at current rates us savers are subsidising borrowers by around 4-6%. The difference between savings rates and inflation.

Have we all just got used to a relatively low period of interest rates

Absolutely!

People and banks have got very complacent and relaxed affordability tests, allowing house prices to rise which puts people in a very difficult position when rates start rising again.....

Have we all just got used to a relatively low period of interest rates and media creating ‘panic’?

90% of people wont understand how interest rates work and just think that they can by a house for £x per month.
When interest rates increase (there are more expected rises) they find that their repayments double thats when people get into financial trouble.

There are going to be plenty of families who are facing an extra £1000 a month to find due to increasing utilities and mortgage costs, which is really going to sting.
Its not really a 'panic' by the media (depending on who you get your news from), its more information that expect your repayments to increase if your deal is coming to an end soon.

Those 10% who do understand how these things work will have been pragmatic in how much they borrowed expecting Interest Rates to return to "normal" levels in the longer term.

The difference between now and the 70s/80s is that houses were affordable

FiFY

The difference between now and the 70s/80s is that houses were affordable

...and you had to doff your cap to the local bank manager who decided wether you were the right sort to lend money to! 🤣

Banks considered me too risky to lend me money to buy properites until after I'd bought.

No idea what wages were like back in the day but in the mid 70s my mums house cost 20k, that’s apparently 125 k in todays money. Today it’s worth over 400k. And that’s in a town that’s known for cheap house prices

Have wages tripled in real terms during that same period?

Anyone not already on the housing ladder is screwed due to interest rates on top of an already ridiculously inflated housing market

We bought in 2014 and factored for a maximum rate of 7% (6.8 actually) into our affordability criteria (1 earner must be able to afford the mortgage and bills) and thus didn't borrow the maximum we were offered by the banks at the time. We're currently fixed at 2.5% and the BoE indirectly stated that they expect it to peak at 4.5%, so realistic rates are going to be between that at 6% for our level of LTV. We can afford that (it's painful, but was considered), but I know others who, especially with the current cost of fuel, food and energy, simply won't be able to one they come off their 2 year deals.

In truth, we can only afford it (the single wage paying everything) due to wage rises. if our wages had stayed the same as they were in 2014, we'd be struggling at the end of the fixed period.

Has anyone seen their current or savings account interest rate go up with these BoE changes?

My bank has jacked their SVR up to 6% yet my savings rates is still 0.5%.

Those 10% who do understand how these things work will have been pragmatic in how much they borrowed expecting Interest Rates to return to “normal” levels in the longer term.

Dont think anyone foresaw mortgage rates going from 2-6% over a period of six weeks though

We up-sized 4 years ago and repayments were comfortably affordable at the low rates that were available at the time. We're now nearing the end of our fix deal.

We factored in that rates will only go up but we didn't expect them to go up so much so quickly. Whilst today's rates aren't causing too much of a squeeze, when you couple them with energy bills increasing £150 a month, fuel at nearly £2 a litre and inflation it quickly starts to spiral.

Fortunately we've managed to fix the mortgage for another 5 years at an affordable level but we're approx. £500 a month down on where we were a few months ago.

The 30 free childcare hours we get in April can't come soon enough!

Has anyone seen their current or savings account interest rate go up with these BoE changes?

You'll need to move your savings to some sort of locked-in account to get the best rates. We're planning on doing it when this latest rise filters through.

Has anyone seen their current or savings account interest rate go up with these BoE changes?

My bank has jacked their SVR up to 6% yet my savings rates is still 0.5%.

I have. You do need to switch though. My current rate is 2.5% instant access. Probably not the absolute best but way better than some.

No idea what wages were like back in the day but in the mid 70s my mums house cost 20k, that’s apparently 125 k in todays money. Today it’s worth over 400k. And that’s in a town that’s known for cheap house prices

I heard somewhere that if houses had only increased in line with inflation from the 70sthen the price of an average house would only be around 80k rather than the current 250k.

My bank has jacked their SVR up to 6% yet my savings rates is still 0.5%

Move your money. You can readily get 5x that even on an instant access savings account.

You’ll need to move your savings to some sort of locked-in account to get the best rates. We’re planning on doing it when this latest rise filters through.

Ah yes. So the banks don't offer an SVR type savings account, your stuck with the one you've got unless you change. They are however not reluctant to do the complete opposite on mortgages

They're laughing at us. The profits they'll see in the coming years alongside uncapped bonuses. We're being taken for absolute mugs

I do feel sorry for my neighbours. A larger mortgage than us and their current fixed deal will expire next summer. We reckon they could need to find almost and extra £1k per month. She's also pregnant and will be earning approx £1k per month less on maternity leave next year.

Neither of them particularly understands what's just around the corner. Ignorance is bliss until it isn't.

but I know others who, especially with the current cost of fuel, food and energy, simply won’t be able to one they come off their 2 year deals.

That's the rub - I am not sure that any affordability models will have built-in>10% food inflation along with the massive gas/electricity increases. We have just come out of our tied-in mortgage and fixed at a new rate (3.9% - fortunately agreed just before rates were Trussed). So our mortgage has gone up by £180 a month which is, in itself, affordable. But add on top probably another £100 a month on food bills and dual fuel that is now costing £280 a month more than it was two years ago. That's an extra £560 we need to find every month. Had my tied-in period ended 3+ months later we'd be looking at another £200+ on top of the £560. Fortunately, we are able to absorb the costs but I can see that there are going to be a great number of households that will really struggle.

The 30 free childcare hours we get in April can’t come soon enough!

Ah yes, about that 23 hours of free childcare.....

The difference between now and the 70s/80s is that houses were affordable

Also, there was wage inflation to help out.

My folks bought a £12k house in 1980. It was about 3 years' worth of my dad's salary. The high interest rates in the early 80s were pretty scary (and there were a few months where the mortgage payments were actually more than my dad's wage), but by 1986, 12k wasn't even a year's worth of the average wage, and within a decade, the repayments were peanuts.

I bought my house in 2015. It was about 8 years of the average wage (and it's smaller than the one I grew up in). 6 years later that purchase price was.... about 7 years worth of the average wage. It's still a big chunk of my income (especially since my salary has declined relative to the average, but that's another story).

…and you had to doff your cap to the local bank manager who decided wether you were the right sort to lend money to!

My MIL got her mortgage after it transpired that her daughter and the bank managers daughters were opposite ends of the pantomime cow in the school nativity play 😆

I'm old enough to have had a mortgage in the early 80's.

Difference between then and now is ordinary folk in even 'expensive' areas could afford to buy if they wanted to, and in cheap areas, it was a no brainer.

The key formula when I first bought was 3x gross income plus 1x OH. It was a simple sum and really didn't get involved in detail nor really what you spent money on. 100% mortgages did exist, but these were dearer than 95%.

But this was nearly 40 years ago.

People have since been sold the speculating dream too (I blame Homes Under the Hammer!), back then the only property speculators were the ones driving Jags and with money already.

Has anyone seen their current or savings account interest rate go up with these BoE changes?

My bank has jacked their SVR up to 6% yet my savings rates is still 0.5%.

Atom Bank (run by the old first direct management team) increased my instant access saver to 2.55% this morning

If you’ve taken out a mortgage that you’ve deemed to be affordable on the basis of the rate it was at when you took it out, and when you come to remortgage the rates are much higher, then that’s a real problem, not media panic.

The bank would have assessed your ability to pay at rates in the 6-8% ballpark and applied a risk rating to their book.

But also this...

That’s the rub – I am not sure that any affordability models will have built-in>10% food inflation along with the massive gas/electricity increases.

We've got 2.5 years of fix left to run, wishing we'd fixed for longer now, but I wasn't really factoring a war on Europe's doorstep in our mortgage planning decisions.

Fortunately, we are able to absorb the costs but I can see that there are going to be a great number of households that will really struggle.

I was shocked a few years ago to find out how little some of my friends have spare at the end of each month. It was around the time one of those surveys came out saying that most people had less then £100 in savings so it was a topic of discussion over a get-together meal. Despite most of the group being in decent jobs and having decent houses virtually none of them had much in savings and the average was about £150 spare each month as breather room. They all looked bemused when I said I didn't like having less than £500 left over every month after basics for savings, holidays and hobbies. That level of preparedness just didn't come into their thinking, most relying on credit cards for emergency spending. How these people are going to cope with a repayment rise coming off a fixed deal I don't know.
Even my sister, who is normally pretty good with money, is not facing up to things. They remortgaged early last year for 3 years and used some of that to do some work on the house (it needed a new kitchen and new windows) plus a bit for a new car as their Zafira is rotting away. They did the work to the house but have now decided that the car can last another year as second hand prices are so high (it can't, the rust is terminal), instead the money is going on a holiday to Florida next summer! I know it's the influence of my BIL who has always been poor with money but there's no talking sense into her.

The bank would have assessed your ability to pay at rates in the 6-8% ballpark

That isn’t the case for deals fixed for 5 years and up. The stress test wasn’t mandated for these long fixed deals.

got used to a relatively low period of interest rates

weve got used to it in that house prices - entirely drivenby a combinationn of supply and demand, and peoples ability to pay - have risen to counteract the low interest rates.

a cheap house on a 15% mortgage, and an expensive house on a 2 percent mortgage; costs you the same amount a month. 1/3 to 1/2 your salary.

finding yourself with a cheap house and low rate (ie, about 20 years ago) did a lot of people of a certain age bracket very well

conversely an expensive house on a high percentage is now going to hurt a lot of people

Have we all just got used to a relatively low period of interest rates and media creating ‘panic’?

yes and no. We use to low rates now but they’re ending and on top of that fuel prices have gone up and cost of living in general. My eletric has gone up by £120 a month, my mortgage is fixed but could potentially jump by £150 a month. That’s just for the 2 main bills. For sone that would just not be affordable.

When I bought my house it was just over twice my wage, currently it’ll be around 4 times my wage. I’ve worked my way up my career in that time so I’m fairly well paid, however if my wage had followed inflation I’d be on a lot more. Anyone starting their career now in my employment would struggle to afford a house like mine.

I think the other affordability element compared to the 80's, is the amount of stuff we all buy in a month that we deem essentials (to a greater or lesser degree) that has removed the ability for some to soak up interest rate charges. Broadband, Mobile phones, Spotify and netflix, costa coffee, deliveroo and eating out etc etc. Jut £000's of pounds a year that our parents weren't spending.

We're used to low rates, but high prices for everything, we're going to have to get another car in the near future, when we bought the current one in 2011, it was 12k for a 3 year old Golf GTD, the equivalent now is double that, everything is just more for the same, insurance, gas and electric, food, etc.

Life is going to suck for the next couple of years unfortunately, belt tightening is all good and well, but i can see a lot going to the wall, companies and families in that time, not good.

They all looked bemused when I said I didn’t like having less than £500 left over every month after basics for savings, holidays and hobbies. That level of preparedness just didn’t come into their thinking, most relying on credit cards for emergency spending. How these people are going to cope with a repayment rise coming off a fixed deal I don’t know.

do you mean that you dont like running your current account down to below £500 the day before payday? so basically have £500 there if you need it

or that you have £500 every month available for "fun" which you can, in an emergency, not spend?

I think the other affordability element compared to the 80’s, is the amount of stuff we all buy in a month that we deem essentials (to a greater or lesser degree) that has removed the ability for some to soak up interest rate charges.

there is a problem that a lot of things are pay monthly now. driven by low interest rates meaning loads of places can offer low or no interest payments, as a result, few people have savings or a saving mentality to allow for a big purchase, but anything needed can be "just another X per month"

I dont think my parents borrowed ever, apart from their mortgage; and my dad's incredibly complex exploitation of 0% credit cards for profit, not out of necessity.

Broadband, Mobile phones, Spotify and netflix, costa coffee, deliveroo and eating out etc etc. Jut £000’s of pounds a year that our parents weren’t spending.

You never rented a video, went out for lunch, ordered a takeaway or visited a cafe as a kid?

@Drac purposely choosing to miss the point again! 🙂

I was depressed by looking the other day at houses on streets in E London I know well, 3 beds, busy road, £800k ffs.

You never rented a video, went out for lunch, ordered a takeaway or visited a cafe as a kid?

Rarely.

I think the other affordability element compared to the 80’s, is the amount of stuff we all buy in a month that we deem essentials (to a greater or lesser degree) that has removed the ability for some to soak up interest rate charges. Broadband, Mobile phones, Spotify and netflix, costa coffee, deliveroo and eating out etc etc. Jut £000’s of pounds a year that our parents weren’t spending.

I'm probably your parents ago, we spent it on other stuff...

You never rented a video, went out for lunch, ordered a takeaway or visited a cafe as a kid?

I used to play my rented videos on my £500 VHS player, this was back around 1990 when £500 was a lot of money!

So I've little patience with the idea that people younger than me are inherently more ****less with their money than I was at their age.

You never rented a video, went out for lunch, ordered a takeaway or visited a cafe as a kid?

Agreed - and back then there were land-lines and associated line rental charges, things like electricals were massively more expensive - in 1985 a 22'' TV cost £339, a video recorder was £369, a washing machine £259 (standard brands, not high end stuff) - example prices here so money was being spent, but just in different areas.

 back around 1990 when £500 was a lot of money!

It still is for some of us!

yeah I'm staggered by the costs of some old goods! I'm pretty sure I remember my folks spending near £2,000 on a 10 year old Volvo in about 1992. (!)

The tight gits didn't get a VCR until about 2002, after I had left home. Harumph 🙁

Agreed – and back then there were land-lines and associated line rental charges, things like electricals were massively more expensive – in 1985 a 22” TV cost £339, a video recorder was £369, a washing machine £259 (standard brands, not high end stuff) – example prices here so money was being spent, but just in different areas.

That's why a lot of people rented white goods and TVs. As kids we were always dragged into Rumbelows, Radio Rentals or the Electric Board shop by my mum paying for things at a few quid a week. It was part of the Saturday morning routine.

Have we all just got used to a relatively low period of interest rates

It's not that we've got used to them, they've been forced upon us to compensate for falling real incomes and high property prices. Back in the 70s they started to dismantle the welfare state and the link between wages and productivity which enabled families to buy a house, save for the future and to live on a single income. They compensated for that by providing cheap debt and it carried on that way until 2008. After 2008 the banks had to be bailed out with QE, which forced down interest rates. Most of the QE money ended up in the bank accounts of financial institutions and all the people they employ resulting in an asset boom in equities and property. This forced up house prices even more resulting in our current exposure to higher interest rates. Long story short the rich have got very much richer and the rest of us are paying the price. And now they tell us they have to create a massive recession because we've got too much money. We're being robbed. I'm amazed people aren't out of the streets.

That’s why a lot of people rented white goods and TVs. As kids we were always dragged into Rumbelows, Radio Rentals or the Electric Board shop by my mum paying for things at a few quid a week. It was part of the Saturday morning routine.

Absolutely - we were lucky (and therefore I was one of the popular kids at school 😂) as my dad worked in the electrical supply/repair trade so we always had nice TVs (including a lovely Tandberg and a Bang & Olufsen in the mid-80s when they were absolutely silly money to actually buy - we just got them for free on long-term tests), we were one of the first to get a VCR and we had a 'Grandstand' games console (a competitor to the Atari back in the day).

In every other aspect of our lives we were very normal, we just had a very bling AV set-up (I even had a beautiful Sony separates set-up in my bedroom in the late 80s/early 90s that had a retail of over £600 at the time IIRC).

Those 10% who do understand how these things work will have been pragmatic in how much they borrowed expecting Interest Rates to return to “normal” levels in the longer term.

I don't think that's really very fair.

With house prices being what they are, I don't think a lot of people have had a lot of choice in what they borrow - it's not been a case of buying mansions, it's just been buying somewhere to live.

I mean, sure, people might have had their heads in the sand with which way interest rates would go, but the alternative was potentially to watch house ownership get further and further out of reach.

purposely choosing to miss the point again!

No. It’s you who has. As pointed by others they still had outgoings similar to now that weren’t essential.

I did find myself idly mulling the idea just dropping onto a tracker or some sort of variable rate when our current 2% fix ends in a bit under a year, Yes potentially we'll have an indeterminate period with seriously Jacked up monthly payments, but if base rates are brushing 5-6%+ when we end up needing to re-mortgage I'd be loathe to take a fix something like what 8% potentially(?) even if it was just for 12 months, 24 months at that level would probably be pretty tough for us (but doable), if base rates do start to drop off in say mid-2024ish(?) where does that leave anyone who's taken a silly high 24 month Fix? The squeeze for them lasts even longer... If we did take a tracker @ Base rate +2%, obviously there would be some financial pain, but it would reduce a bit sooner when (if) the base rate goes down.

The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial "Experts" future estimates right now?

I've found one "forecast" that says it will "trend" around 5.20% during 2023, reducing slightly to a "trend" of 4.70% in 2024. So If we're seeking a fix in 23 it's going to be at least 7% and stay there while Rates potentially drop over the following 12 months.

Still feels like a huge gamble though...

We are in the same boat, fixed deal ends summer 2023. I doubt we will be seeking a new fixed deal at that point, just ride the very painful SVR rollercoaster.

I mean, sure, people might have had their heads in the sand with which way interest rates would go, but the alternative was potentially to watch house ownership get further and further out of reach.

But this has been the issue.

I could have borrowed double what I have and bought fancy house, but chose not too as I didnt want want the debt burden.
I have friends who have paid over asking price for properties, in the thought that if they didnt they would miss out.

The rise in house prices isnt driven by demand.
Its been driven by cheap credit.

This increase in interest rates will help to correct the correlation between average earnings and average house prices.

The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial “Experts” future estimates right now?

"The markets can stay irrational longer than you can stay solvent..."

We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆

That’s why a lot of people rented white goods and TVs

God, yes, I'd forgotten about that, I was watching my rented videos on a rented TV, in my rented flat! I was shielded somewhat from energy costs since the flat had no heating apart from a gas fire in the living room so that was a bit of luck.

The question has to be just how high and for how long are interest rates expected to go? is there any sensible forecast? And you could base such a decision on financial “Experts” future estimates right now?

I’ve found one “forecast” that says it will “trend” around 5.20% during 2023, reducing slightly to a “trend” of 4.70% in 2024. So If we’re seeking a fix in 23 it’s going to be at least 7% and stay there while Rates potentially drop over the following 12 months.

Have a read:
https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022
Chart 2.7

However, these forecasts are changing every day, and you can only forecast on what you know, or is reasonable.
No forecast would ever had the war in Ukraine within them.

It all pends on your appetite for risk?
Rates could go up or down over the medium term.
Do you want certainty or a fixed deal over a 2 year period, or do you want to risk potential savings of a tracker, vs rates continuing to increase?

the flat had no heating apart from a gas fire in the living room

When I bought my first house I wouldn't even put the gas fire on as I couldn't afford it - I'd sit in a sleeping bag on my second-hand sofa watching the TV (a nice one, see above), occasionally hopping over to the fridge to get a tin of Morrisons own-brand lager.

I doubt we will be seeking a new fixed deal at that point, just ride the very painful SVR rollercoaster.

I'm sort of coming to that conclusion, but bolstering our savings just to see us through a couple of years (at least) of rollercoaster riding feels demoralising. plus I wanted to maximise overpayments too while our borrowing is still "Cheap" but then that then becomes money we won't have to shore up our mortgage payments for the indeterminate duration coming storm, unlike some our finances are finite.

Right now it feels like someone presenting you with this set of choices:

And asking you which one you want shoving up your arse, with the caveat that they get to decide how fast and how many times they insert the chosen Cactus...

We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆

Certainly not a terrible bit of Foresight, but if you're coming off that deal in 2025, you could still find yourself in a similar boat as us mugs that only took out a 5 year fix in ~2018 thinking we were being clever. the major difference will be the amount of overpayment you can do in the intervening period, pay that sucker down if you can...

Totally agree that, particularly the cost of entry to the house owners club, means that many have no choice but to stretch what they can borrow. We did initially, and if this kind of rise had happened in 2005 when we were new to a mortgage we would have been utterly screwed.

Yet here is the problem: even the new higher mortgage payments are likely cheaper than rental payments.

That does not disregard there are a small group of folk who have *chosen* to extend what they borrow to keep up with the joneses on house size, cars and foreign holidays. How you differentiate between the 'have to' and the 'idiots' is impossible though, it does feel like a job for someone who likes counting other peoples money.

The which cactus do you want inserting is a good analogy for many at the moment, and not of their causing.

We fixed for 10yrs in April this year for just below 2%. We paid a few grand to get out early in hopes it would work out long term from what we were reading in the news.

What astounded me was that the mortgage broker was doing her absolute best to stop us from going early.
We were due to renew from the end of December and she was convinced that it would only go up by .1-3% come renewal time 'because it's stayed the same for the last 5 years'.
We played it safe and swallowed the pill thankfully. She even followed up during the cooling off period to see if we'd changed our minds. For a few months after we worried we'd done the wrong thing whilst paying off the fees.

I know a few people that have moved and over stretched and taken a 2-5 year tracker in the last year. I'm worried for them! Not entirely sure where it'll end.

We took a 10 year fix in 2015. My thinking was that interest rates had been at historic lows for about 5years, and with base rate at 0.5% there was only one way it could go. It went down, and stayed down for about 5 years 😆

Same, in 2017. I'm now in the fortunate position that when the deal runs out the mortgage will be paid off. If I need to move that obviously stuffs things up but at least we have equity.

I have absolutely no illusions about how fortunate we are.

Have a read:
https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022
Chart 2.7

Well it looks like they're already 2 Quarters ahead on reaching that 'peak' 3% (Cheers Liz/Kwasi), if that forecast were really the shape of things to come I'd actually be sort of encouraged, assuming lenders carry on offering Fixes circa ~2% above base rate we could maybe score ~5% in Q4 2023(?). But I'm just not sure I believe it, I reckon we're going to see them crank the base rate up a few more notches yet to at least to be on ~4% by then. Possibly peaking Q4:23/Q1:24 at which point a tracker perhaps becomes an attractive idea; but yeah, still not sure I quite have the appetite for that level of risk and it's not like rates will plunge back down, they'll gradually slide back towards 2% over the course of 18-24 months or so won't they. So a 24-36 month 5-6% fix taken out in Q3 2023 perhaps doesn't seem so crazy, especially when there's still a chance that some unforeseen events (like I dunno an election or further escalation in Ukraine) could create more market panic and interest rate hikes.

Ungggghh! Looks like I'm getting a medium girth, moderate length Cactus inserted and removed slowly at least three times...

https://www.theguardian.com/politics/2022/nov/04/boris-johnson-accepts-another-10000-in-accommodation-from-tory-donor

They really are all taking the proverbial!

do you mean that you dont like running your current account down to below £500 the day before payday? so basically have £500 there if you need it

or that you have £500 every month available for “fun” which you can, in an emergency, not spend?

£500 a month to either put in savings or spend on nice things (trips, bike parts etc) and I like to have a minimum of a month's wages in easily accessible savings. Longer savings are separate. If there's anything in my main account with a few days before payday I sweep it into my easy access savings, anything over £1500 in that gets moved into my NS&I account although with rates going up and prizes getting less likely then that may change to a longer term savings account with a decent rate.

That £500 excess over basic every month is also used for a few 'bills' that I pay annually, car and home insurance for example, so I like to keep my outgoings down to that level based on basic monthly pay. Any extras or overtime are on top and usually go into savings. I've been down the massive debt/nearly bankrupt path once before and will never start back down that route if I can help it!