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9 In 10 Mortgages On A Variable Rate!

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http://www.telegraph.co.uk/finance/economics/8371411/Interest-rate-rise-warning-for-10m-families.html

The warning about the fragile state of household finances comes as the Bank of England decides today whether to end two years of the lowest rates in British history. Economists expect policymakers to leave rates unchanged at 0.5pc.

LGIM's research suggested that the economy is not yet strong enough to withstand the 2 percentage points of rate rises markets are expecting before the end of 2012.

"It would mean the kind of monetary tightening we had pre-crisis and we don't feel the economy is resilient enough to withstand that," Tim Drayson, LGIM economist, said. "If banks pass on any rate rises, which seems likely given pressure to rebuild [their] capital levels, many homeowners will quickly experience a meaningful impact on their cashflows."

A 2 percentage point rate rise would add about £170 a month to the cost of a £100,000, 25-year mortgage – or £2,000 a year – by increasing the average mortgage rate from 3.25pc to 5.25pc.

LGIM's analysis means that more than 10m of the 11.2m households with total mortgage debts of £1.2 trillion are vulnerable. In the past decade, fixed rates have never accounted for less than 20pc of the total market.

LGIM's data contradicts statistics from the Financial Services Authority that show 68pc of households are on variable rates. However, Mr Drayson said the FSA does not quantify the volume of borrowers who have not remortgaged but simply moved onto standard variable rates at the end their fixed terms.

....

"According to our analysis, if the Bank raises rates in-line with market expectations, our model suggests they will need to reverse course in 2012," he said.

Welcome to fooked Britannia.

Good to see the FSA on the ball as usual.

Still it's all contained...

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Welcome to fooked Britannia.

Good to see the FSA on the ball as usual.

Still it's all contained...

Of course, the impact is smaller for those on repayment mortgages, due to the way repayments are calculated. Strangely enough, the fact that IO mortgages leave people open to interest rate shocks for the life of the loan whereas repayment mortgages are progressively less sensitive as time goes on has not been widely advertised. Can't imagine why.

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I wonder what proportion of those are interest only...

I find it staggering that we've got to the point where increasing IRs to the heady level of 2.5% will cause financial Armageddon it just shows what a pickle we're in.

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Are people staying on variable rate because they know that rates simply CAN'T be raised?, or are they staying on them because they've defaulted onto them and couldn't get a decent loan from anyone else?

I'm on a SVR because it's so much cheaper than an fixed rate. Why would I lock myself into a 4-5% mortgage when I pay 1.5% now.

Fixed rates are usually for quite a short term (say 2-5yrs) and I can't see them going above 4-5% in that time.

Edited by exiges

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I'm on a SVR because it's so much cheaper than an fixed rate. Why would I lock myself into a 4-5% mortgage when I pay 1.5% now.

Fixed rates are usually for quite a short term (say 2-5yrs) and I can't see them going above 4-5% in that time.

Similar situation, on a tracker below BOE for another 2 years on I/O and an LTV of less than 50%

No point in paying off capital at these rates plus inflation.

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I just signed up for an offset mortgage. 3.75% over 6 years. You link up to 3 accounts (with the same bank) and instead of being paid interest on those accounts it pays the interest on your mortgage. Effectively a fixed rate deal. No early repayment penalties and low cost fee to get the loan (£299--Natwest).

BTW--Natwest said only 2 X joint salary! And that on a 25% of value loan. IMagine if we only had 20% downpayment.... :o:o

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If 90% are svr how long is it going to take before they become non profit making ? or are the able to refinance below the svr rates ?

There has been a large amount of ramping of fixed rate deal`s of late and with the IR`s being offered it make`s no sense for some one on a svr to move, is the above becoming a bigger problem now as the SLS money is coming to a end .If so Merv is going to have to choose between bailing out the mortgage holder`s with low IR or raise the IR to bail out the banks

But there again printy printy

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I'm on a SVR because it's so much cheaper than an fixed rate. Why would I lock myself into a 4-5% mortgage when I pay 1.5% now.

Fixed rates are usually for quite a short term (say 2-5yrs) and I can't see them going above 4-5% in that time.

+1

Currently paying BoE +0.5%, and could cope with the repayments on a much higher interest rate - we were paying 6% when we bought, and asked for the figures for 12%, not nice but still affordable.

We won't be dashing for a fix anytime soon.

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I just signed up for an offset mortgage. 3.75% over 6 years. You link up to 3 accounts (with the same bank) and instead of being paid interest on those accounts it pays the interest on your mortgage. Effectively a fixed rate deal. No early repayment penalties and low cost fee to get the loan (£299--Natwest).

BTW--Natwest said only 2 X joint salary! And that on a 25% of value loan. IMagine if we only had 20% downpayment.... :o:o

So RB, come clean. Tell us all what paperwork you had to show/sign to get that LIAR LOAN ? :D:D

The HPC board are going to unleash Eric Pebble , to get on your case - pronto!!

:lol:

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I was under the impression it was nearer 1 in 2, guess thats more of a recent trend...better hope those 9/10 bought pre 1997.

Why?

Not everyone who bought post '97 is on a 7 x two salary 125% LTV IO liar loan.

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I have no doubt that when interest rates start to rise, lots of homebuyers will get a shock and there will be a jump in repossessions as owners struggle to keep up with a rise in mortgage payments.

However, I think it will take some time to feed through. First, the BoE rate rises. Then the interest payments rise from the next month onwards. But if the rate rises by increments of like 0.25% or 0.5% each month, then for the first few months the majority of homeowners will still be able to absorb the cost of the rise.

Its only when the rate has gone up like 2%, homeowners start to struggle... but even then, they'll max out their cards, borrow from family and friends, etc for a few months to make payments. Then they lapse in payments - and only after like 4-6 months of lapsed payments will the bank typically repossess.

So if we're looking at first rate rise in May and reaching 2% by mid-2012, then add another 3-4 months where homeowners try to meet the payments, and another 4-6 months after falling behind to get repossessed, then we're taking about the repossession rate rising in like mid-2013. Quite some way off.

Of course, this is the optimistic scenario for interest rates. If inflation surges, then the BoE might decide to hasten the pace of rises, and we could see 3-4% in mid-2012.

All this is my own opinion and assumptions - others will have theirs, and its up to you what your assumptions are!

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Of course, this is the optimistic scenario for interest rates. If inflation surges, then the BoE might decide to hasten the pace of rises, and we could see 3-4% in mid-2012.

It's already surging. The fiddled BoE/Govt figures tell us it's already over 4%. Many suspect it's 1-2% points above the official figure. There's no reason to keep IR's at near zero - unless the big plan is to inflate away the debt and leave cash holders (ie. savers) with diddly-squat..... :angry:

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Guest eight

I was under the impression it was nearer 1 in 2, guess thats more of a recent trend...better hope those 9/10 bought pre 1997.

We bought in 1999. House was £30K with £28.5K of that mortgaged I/O. Seemed like all the money in the World at the time and was the maximum that we could borrow - 2.5x my salary which was quite good for Darlington at that time.

We fixed initially but since reverted to C&G SVR which is base + 2%. Why would we ever want or need to fix again?

eight

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Why?

Not everyone who bought post '97 is on a 7 x two salary 125% LTV IO liar loan.

name one.

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We bought in 1999. House was £30K with £28.5K of that mortgaged I/O. Seemed like all the money in the World at the time and was the maximum that we could borrow - 2.5x my salary which was quite good for Darlington at that time.

We fixed initially but since reverted to C&G SVR which is base + 2%. Why would we ever want or need to fix again?

eight

For that price are you talking the Denes or ex local authority?

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Guest eight

For that price are you talking the Denes or ex local authority?

Neat the Station/Cattle Mart; big house but not in the best condition when we bought. This is when such properties were just considered grotty rather than being an investment opportunity.

eight

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The big question is - Are people staying on variable rate because they know that rates simply CAN'T be raised?, or are they staying on them because they've defaulted onto them and couldn't get a decent loan from anyone else?

Personally, I've stayed on the (astonishingly) cheap variable rate out of choice - I have savings I can use to pay it all off if interest rates rise but I'm of the opinion that it's simply not an option for a few years. The fallout (commercially/society) would be just incredible :huh:

Buckers

I've been thinking it's a game of chicken now between the mortgage holders and mystic merv. If he increases rates he kills the "recovery", if he keeps them low ultimately he'll have to bailout the banks again with a % of that coming from the same mortgage holders. Either way the mortgage holder will pay, but if it's a bailout via taxpayer cash non mortgage holders also get to contribute.

Just as Mystic Merv said when the bank run started at NR once the panic starts it's perfectly logical to do the same. He now has a nightmare mortgage bank run where he gets to pick the outcome and take the political consequences. In the current climate it makes no sense to take a 5% fixed rate deal.

Rock and a hard place.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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