Thursday, May 03, 2007
25 year fixes gone
Firstrung: Nationwide sells out of a 25 year fixed rate mortgage
Nationwide Building Society has announced the withdrawal of its 25 year fixed rate mortgage. Nationwide said the mortgage will be withdrawn from sale at close of business today Thursday 3 May 2007. Launched at the end of March, the mortgage was aimed at borrowers seeking long term security of payments. The 25 year product allowed borrowers to move their mortgage without penalty after 10 years. The initial tranche of £50 million funding has now sold out, with many borrowers being able to take advantage of the deal.
Posted by converted lurker @ 12:11 PM (158 views) Add Comment
8 Comments
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1. sovietuk said...
What's this???? Nationwide loosing confidence in long term low interest rates??? Must mean that a spell of nasty 'party spoiling' high interest rates is on its way. Very dark clouds obviously gathering very quickly on the horizon.
2. paul said...
Yes, their terminology is "we've sold out of 25 year mortgages".
The reality is "we can't offer it any more".
3. lvmreader said...
What's that I hear? Chickens? Home? Roosting?
I could break you mate, in two pieces over my knees. You know it. I know it.
Sir Larry Wildman, Wall Street 1987.
4. dohousescrashinthewoods said...
Well, if they bought money at those rates and it has run out, that's that.
If it was a gamble on long-term rates, presumably they are stuffed.
Interesting they can't "rinse and repeat" - or have they already leveraged?
5. Rimmer said...
Duffers
I hope Nationwide looses a fortune and the managers responsible get the boot.
Here on this site we have severe doubts about next year let alone 25 years time - Idiots !!
6. Scott said...
I remember when I was 6 and I said "Why can't they print more money and then everyone would be rich". I guess some people never learn.
7. lvmreader said...
Does anyone know for sure the provisions about a bank asking a customer to move to a floating mortgage?
After all, they can demand repayment at any time, no? So they can demand repayment and then offer a new mortgage?
8. Boz said...
I would not presume the bank is stuffed but instead think that they have adequately hedged these 25 year mortgages.
One such structure available to them is a basic interest rate swap. They agree to swap fixed for floating interest payments with another big financial institution on a notional amount equal to the sum of what they have outstanding in these 25 year loans. They effectively pay the net of the current fixed, swap rate minus the floating rate. This completely protects them against rising interest rates and because they will generally charge their customers a higher rate than the swap (fixed) rate they pay to the other bank, they come out on top. If rates drop, then they lose in the swap deal but make this up from their borrowers.
Banks charge each other much better rates than they offer customers so you can be sure that the institution who has taken the floating side of the swap will have hedged it with some other structure which no doubt takes a cut from their customers too.