Quick H P C Afternoon Challenge

[bomberbrown]

OK, a detached beautiful 4 bedroomed town house in central London* goes to the first person that can find a 25 year fixed rate mortgage from any of the reputable lenders out there. The last one I knew of by Kent Reliance Building Society has recently been pulled.

* Actual prize might differ fom description

[Bloo Loo]

Is this a raffle?

[General Congreve]

[Lepista]

In my opinion, a full term fixed rate mortgage is the only 'true' fixed rate mortgage.

[Georgia O'Keeffe]

OK, a detached beautiful 4 bedroomed town house in central London* goes to the first person that can find a 25 year fixed rate mortgage from any of the reputable lenders out there. The last one I knew of by Kent Reliance Building Society has recently been pulled.

* Actual prize might differ fom description

close enough

20 Years fixed at 3.30%

Theyd extend to 25 if you phoned

You just need to ask your employer to pay you in CHFs

Edited January 27, 2011 by Tamara De Lempicka

[winkie]

What is the currency......and what is the arrangement fee?

[Georgia O'Keeffe]

What is the currency......and what is the arrangement fee?

Notaires Fees are pretty much always between 0.5% and 1%

[easy2012]

OK, a detached beautiful 4 bedroomed town house in central London* goes to the first person that can find a 25 year fixed rate mortgage from any of the reputable lenders out there. The last one I knew of by Kent Reliance Building Society has recently been pulled.

* Actual prize might differ fom description

Depend how big your fixed rate will be. If you are buying one of those at One Hyde Park, ring up any of the big ibanks BarCap, GS,MS and say you want

to buy a floating rate for fixed rate swap for 25 years and I am sure they will arrange something for you. For perhaps a 0.5% fees. Obviously if you

are talking about a few hundred ks, they really can't be bothered.

There is a market for long gilt, so such mortgage can be priced from there.

[Bloo Loo]

close enough

20 Years fixed at 3.30%

Theyd extend to 25 if you phoned

You just need to ask your employer to pay you in CHFs

no, its says 3,300% for the 20 year.

thinks thats a bit Loan Sharkish..fails on reputability.

[Georgia O'Keeffe]

no, its says 3,300% for the 20 year.

thinks thats a bit Loan Sharkish..fails on reputability.

Good spot, i even know the kneecapper personally in ZIC, hes very professional so he tells me

[gravity always wins]

Theyd extend to 25 if you phoned

I bet its a super premium rate number.

[Bloo Loo]

Good spot, i even know the kneecapper personally in ZIC, hes very professional so he tells me

Is this him?

Edited January 27, 2011 by Bloo Loo

[Blue Nose Bear]

OK, a detached beautiful 4 bedroomed town house in central London* goes to the first person that can find a 25 year fixed rate mortgage from any of the reputable lenders out there. The last one I knew of by Kent Reliance Building Society has recently been pulled.

* Actual prize might differ fom description

I'll bet it does

Detached Town House

[bomberbrown]

OK, so the point of my starting the thread was really to highlight and start a discussion on what the disappearance of these long term fixed mortgages says about where 'market' interest rates might be heading?

5 or 6 years ago, most of the big mortgage lenders had mortgages advertised fixed in the ranges of 5, 10 , 15, 20 and not quite as common, 25 years. Now it's a rareity to find anything fixed for more than 5 years.

Even if I wanted to buy a house now, I couldn't, because I have always vowed I would never borrow money where at any stage I had no control over what the interest for paying it back would be.

[Lepista]

OK, so the point of my starting the thread was really to highlight and start a discussion on what the disappearance of these long term fixed mortgages says about where 'market' interest rates might be heading?

5 or 6 years ago, most of the big mortgage lenders had mortgages advertised fixed in the ranges of 5, 10 , 15, 20 and not quite as common, 25 years. Now it's a rareity to find anything fixed for more than 5 years.

Even if I wanted to buy a house now, I couldn't, because I have always vowed I would never borrow money where at any stage I had no control over what the interest for paying it back would be.

I wonder at what point(s) in the last 50 years would have taking out a 25 year fixed mortgage been a savvy thing to do? 1972?

[LuckyOne]

OK, so the point of my starting the thread was really to highlight and start a discussion on what the disappearance of these long term fixed mortgages says about where 'market' interest rates might be heading?

5 or 6 years ago, most of the big mortgage lenders had mortgages advertised fixed in the ranges of 5, 10 , 15, 20 and not quite as common, 25 years. Now it's a rareity to find anything fixed for more than 5 years.

Even if I wanted to buy a house now, I couldn't, because I have always vowed I would never borrow money where at any stage I had no control over what the interest for paying it back would be.

The rates would probably be unpalatable

The 25 year swap rate is around 4.25%

The 25 year funding spread over Libor for UK mortgage lenders is probably in the region of 225 bps

The average net interest margin for UK banks is around 225 bps

The expected 25 year mortgage rate would be in the region of 8.75%

I think that there are two reasons why they aren't offered :

1. Retail are very happy to ride the yield curve. Short term gain for long term pain is the usual outcome for this strategy.

2. Banks are concerned about their liquidity position. They are trying to match the maturities of their assets and liabilities better. For many of them, 25 year funding simply isn't available and they don't want the funding mismatches

I don't think that the direction of rates is really an issue. Banks can easily manage rate risk through the interest rate swaps market. I think that it is liquidity concerns and consumer preference that has lead to the death of the longer term, fixed rate mortgage market in the UK.

[snowflux]

I still have a Bausparvertrag or "building savings contract" from my time in Germany. This is a contract which obliges you to pay into a pot for a certain length of time and, in return, gives you the right to borrow the same amount of money (to buy or build a house) on maturity of the contract. It's the normal way of financing a house purchase there. The interest rate paid on the savings and charged on the loan are fixed on entering into the contract, in my case at 2% and 5% respectively.

Variable rate mortgages are virtually unknown in Germany; indeed, friends there expressed incredulity that anyone would be reckless enough to borrow money without knowing exactly how much interest they would be paying on it!

[bomberbrown]

I wonder at what point(s) in the last 50 years would have taking out a 25 year fixed mortgage been a savvy thing to do? 1972?

My work colleague took one out in 2004 or 2005, I forget, at 4.79%. I suppose that's not too bad?

[LuckyOne]

I wonder at what point(s) in the last 50 years would have taking out a 25 year fixed mortgage been a savvy thing to do? 1972?

On average it is a bad thing to do. Sometimes, it is a good thing to do. A bit like insurance really. With hindsight, insurance is a waste of money for most people but extremely value for a few.

The problem is that holding onto a house means that mortgage payments have to be made each and every month. Fixing means that the costs of holding onto your house each and every month are known which reduces the impact of a spike in short term rates which could be catastrophic.

The whole "inflate my debts away" argument relies on the fact that you can hold onto your house during the evolution of higher inflation and accompanying interest rate rises before the mortgage can be repaid with an empty crip packet and a dirty sock.

There is no right answer. It is about certainty versus uncertainty.

[bomberbrown]

The rates would probably be unpalatable

The 25 year swap rate is around 4.25%

The 25 year funding spread over Libor for UK mortgage lenders is probably in the region of 225 bps

The average net interest margin for UK banks is around 225 bps

The expected 25 year mortgage rate would be in the region of 8.75%

I think that there are two reasons why they aren't offered :

1. Retail are very happy to ride the yield curve. Short term gain for long term pain is the usual outcome for this strategy.

2. Banks are concerned about their liquidity position. They are trying to match the maturities of their assets and liabilities better. For many of them, 25 year funding simply isn't available and they don't want the funding mismatches

I don't think that the direction of rates is really an issue. Banks can easily manage rate risk through the interest rate swaps market. I think that it is liquidity concerns and consumer preference that has lead to the death of the longer term, fixed rate mortgage market in the UK.

Thanks, interesting comment (even though some of it I don't quite understand just yet - I need to read up on rate swaps and how banks work etc)

[Lepista]

My work colleague took one out in 2004 or 2005, I forget, at 4.79%. I suppose that's not too bad?

Up until now (...), it hasn't been a particularly wise choice given where variable interest rates are now.

[LuckyOne]

I still have a Bausparvertrag or "building savings contract" from my time in Germany. This is a contract which obliges you to pay into a pot for a certain length of time and, in return, gives you the right to borrow the same amount of money (to buy or build a house) on maturity of the contract. It's the normal way of financing a house purchase there. The interest rate paid on the savings and charged on the loan are fixed on entering into the contract, in my case at 2% and 5% respectively.

Variable rate mortgages are virtually unknown in Germany; indeed, friends there expressed incredulity that anyone would be reckless enough to borrow money without knowing exactly how much interest they would be paying on it!

And a normal, 20 year repayment mortgage in Germany is available at about 5.15% to-day.

[bomberbrown]

I still have a Bausparvertrag or "building savings contract" from my time in Germany. This is a contract which obliges you to pay into a pot for a certain length of time and, in return, gives you the right to borrow the same amount of money (to buy or build a house) on maturity of the contract. It's the normal way of financing a house purchase there. The interest rate paid on the savings and charged on the loan are fixed on entering into the contract, in my case at 2% and 5% respectively.

Variable rate mortgages are virtually unknown in Germany; indeed, friends there expressed incredulity that anyone would be reckless enough to borrow money without knowing exactly how much interest they would be paying on it!

That is precisely my point!! Perhaps there's a bit of German in me? Also, I think naturally, I'm not a taker of risks so that might also explain why a completely fixed term mortgage appeals to me rather than variable rates.

[Lepista]

On average it is a bad thing to do. Sometimes, it is a good thing to do. A bit like insurance really. With hindsight, insurance is a waste of money for most people but extremely value for a few.

The problem is that holding onto a house means that mortgage payments have to be made each and every month. Fixing means that the costs of holding onto your house each and every month are known which reduces the impact of a spike in short term rates which could be catastrophic.

The whole "inflate my debts away" argument relies on the fact that you can hold onto your house during the evolution of higher inflation and accompanying interest rate rises before the mortgage can be repaid with an empty crip packet and a dirty sock.

There is no right answer. It is about certainty versus uncertainty.

I think you are maybe talking about a short-term fix (of say 5 years), rather than fixing for a full 25 years.

The full analysis I guess is pretty difficult, and perhaps not at all intuitive, as it depends on factors such as the rate at which you fix, the variable ratefor the following 25 years (as a comparison), the (relative) cost of the house when you bought (no point fixing a low rate if the relative price of the house is double the long term average).

[bomberbrown]

Up until now (...), it hasn't been a particularly wise choice given where variable interest rates are now.

I thought variable rates were hovering between the 5% and 7% at the moment. I must check.