Sunday, May 17, 2009
2007 tracker deals expiring fast
The Times: Homeowners with trackers face shock rise
This could be the next trigger in the HPC. All those 2 year tracker deals coming to reset time.....
"Brokers are warning some borrowers to brace for a sudden rise in repayments of as much as £583 a month — or £6,996 a year on a typical £200,000 interest-only loan — as loss-making deals on offer in 2007 expire. Their rates could shoot up from 0% to as much as 3.5% if they default on to their lender’s standard variable rate (SVR). On a £500,000 mortgage, the payment shock would be £17,496. "
Posted by voiceofreason @ 12:15 PM (1685 views) Add Comment
15 Comments
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1. Bobby9983 said...
This is BS. These same people had rates of BoE plus whatever when BoE was 5%+ last year. Going from 0.5% to 3.5% will still mean they are paying less now.
2. mark wadsworth said...
Well, this looks promising, but what happened to those who took out two-year trackers in 2005 or 2006? Of the hundred-odd thousand who look to be repossessed this and next year, how many of them are the victims of taking on tasty looking loss-leading rates as mortgage lenders 'battled for market share'?
Out of eleven or twelve million mortgage borrowers, how many will this affect? A few thousand or a few hundred thousand?
These aren't rhetorical questions, by the way, I have a geniune morbid interest in the answers.
3. mark wadsworth said...
Just to get the ball rolling, a BBC article from last year said there are 11.74 million mortgages, 51% on fixed rates, 40% on tracker/discounted variable and <10% on standard variable (well, duh).
Which is all well and good but we still need to know how many of the fixed or trackers expire each year, and by how much their rates go up for down. For example, if somebody bought five years ago with a sensible deposit on a five year fixed rate, their repayments will go down quite a bit if they now go on to SVR. Others who took out a discount tracker two years ago are completely ****ed because they are probably in Nequity by now and their rate will probably double.
4. alan said...
I can't see that this will affect people that much. At worst they will move onto the SVR. Halifax currently runs SVR at 3.5% and other lenders are at a similar amount. Alternatively, those with a LTV of 90% should get a 5% rate on a 5 year (fixed) term.
I assume that when these mortgagees took out a loan they knew they were likely to pay interest, didn't they? When I started my mortgage with Natwest the rate was 11% !
On the subject of rates, with our CoE wanting to borrow $700bn (or $1trillion), lenders might want a higher loan rate to cover risk of default! This might bump up mortgage rates in the medium term. Anyone have a prediction of loan rates next year?
5. Saintjay said...
the point that seems to be being missed here is that when renewal comes up, revaluations are done on the property, downwards mainly, and to avoid being stuck on a really bad rate, the LTV has to be maintained - normally through a cash injections - a margin call in effect. This is what is going to screw people. People are going to be on rates of 7 / 8% - meaning repayments could quite easily double in some cases.
6. japanese uncle said...
They must accpet this as they should have known the risk. Taking chances involves these risks which sometimes totally devastate and ruin people's career and lives. Never talk about risks lightly as if its potential impacts were fully known, as they are not in 99% of the cases. 'Mammie, I didn't know 'risk' should be this bad. So please help me～and get me back to Square One as if nothing happened meanwhile!!' cannot down well in the real world. Lives as the 21-century slaves are in store for them, sadly.
7. denzil said...
Agree with the first poster. This article is appalling with the level of fact and investigation actually being close to non-existent.
"They took out its market-leading deal at 0.51 percentage points below Bank rate in April and May 2007 and will revert to an SVR of 3.5%." No shit Sherlock!
And what rate were they paying and expecting to pay when they took out the mortgage initially? How many lender actually tracked the base rate anyway? And to top it off, when those borrowers borrowed, at a significantly higher rate than present what would they have been paying? If I had took out a £250K tracker mortgage in 2007 I would be more than delighted to be paying 3.5 in 2009?
And another thing, how many people pay the lenders SVR anyway?
This article just makes me realise why I no longer by The Times.
8. bidin'matime said...
But the underlying message is this – more and more people will end up trapped on SVR. Remember that, on the way up, no one wanted to be on SVR, as they could not possibly afford these rates. But on the way down, they get trapped, because their equity becomes eroded (or annihilated..), they might lose their job, they might have got a ‘liar loan’, the lenders will be more choosy, etc etc etc. So the moment that rates start to rise again, the trap will gradually close around millions of borrowers who had thought that they were safe on ‘only’ 3% above base (or whatever). One by one the iceberg on which they are standing will melt and they will drown in their sea of debt…
Like the classic disaster movie scene in which a bunch of people think they are safe, only to see disaster strike moments later (eg Towering Inferno – people in lift (sorry – showing my age), or Titanic – “Phew, that was a close one..”), I see all these people walking about thinking that they have been saved, when so many of them are doomed…
9. little professor said...
The worst is yet to come - so many people are taking out mortgages or remortgages on variable rates or SVR rather than fixing because rates are so low at the moment. With inflation ticking up, there is a whole new section of people that are going to get totally and utterley pwned in about 18 months time when interest rates inevitably surge. Leg 2 of the great HPC will start in 2010.
10. Cheekie Charlie said...
Interesting that at record low base rate's, mortgage rates are still creeping up to a level which will not favour house price inflation. Just wait until the base rate starts to revert to it's mean!
11. hogwash said...
Whole "deal" system was a vital part of the debt-is-wealth scam.
Just an excuse to load up borrowers with more debt and fees paid over term of the mortgage, on a regular basis.
12. icarus said...
...and look what's happening elsewhere, especially in post-Soviet states like Latvia, Lithuania, Ukraine and Estonia. Iceland is a good proxy for what's happening in these places. Icelandic banks borrowed in the currencies of major economies to make mortgage loans. The principal and interest payments were indexed to CPI, which has shot up in line with the fall in the value of the krona - about 20% in the past year or so. Neg equity? The purchaser of a £100,000 house 12-15 months ago would now have a debt of £120,000 and the house would currently be worth about £75,000. Interest rates have varied between 12% and 18% and the mortgage repayments have that 20% indexation added to them (adding about 3-4 percentage points to repayments). Wages have not been indexed - if anything they'll go down if the experience of Latvia is anything to go by - and defaults will escalate....
13. timmy t said...
I have a mate whose tracker ends in August. His monthly repayments will multiply by 16. No that's not a typo!
14. icarus said...
timmy t - what are the figures? After all, 16 x £1 is £16.
15. timmy t said...
Currently paying just over £100