Interest Rates On Help To Buy Mortgages Start To Rise

[thecrashingisles]

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10784520/Interest-rates-on-Help-to-Buy-mortgages-start-to-rise.html

Two major lenders – Santander and NatWest – have become the first to increase rates on their Help to Buy mortgages.

The Government's Help to Buy scheme, designed to help first-time buyers on to the property ladder, has played a large part in stimulating the mortgage market, amid a fresh surge in demand and prices. Vince Cable, the Business Secretary, has warned that interest rates should be raised to avoid a situation where house prices are “out of control”.

While the rates have only nudged higher, other lenders could follow suit. Lenders are preparing for the possibility of an increase in the UK Bank Rate.

Last week, a Treasury survey of City economists found that they all now expected the Bank of England key rate to rise in 2015, with some predicting rapid increases to 1.75pc during the year. The first increase is expected in the early summer.

[rantnrave]

And yesterday Natwest told me that they're dropping the already-paltry rate on my savings account. How big do their margins need to be to recapitalise??

[dances with sheeple]

Get them rates up, I`m sick of people that sell fags in Tesco driving around in "Bling" motors. We need some economic sanity to return to the UK.

[billybong]

Vince Cable, the Business Secretary, has warned that interest rates should be raised to avoid a situation where house prices are “out of control”.

Amazing that Vince still makes a good living out of being so far behind events.

[Wurzel Of Highbridge]

Even I'm tempted by Barclay's 10 year fixed at 3.89% - Seems quite cheap to me.

Does anyone have any idea where interest rates will be in 10 years time? What house prices will be in 10 years time?

[goldbug9999]

Even I'm tempted by Barclay's 10 year fixed at 3.89% - Seems quite cheap to me.

Does anyone have any idea where interest rates will be in 10 years time? What house prices will be in 10 years time?

Well based on their past predictive ability you can take whatever the BoE say and assume it will be the opposite of that.

[TheCountOfNowhere]

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10784520/Interest-rates-on-Help-to-Buy-mortgages-start-to-rise.html

And why wouldn't they...iof people cant afford to pay for them they simply take their 5% + the governments guarantee then sell it on....great job if you can get it

[Wurzel Of Highbridge]

And yesterday Natwest told me that they're dropping the already-paltry rate on my savings account. How big do their margins need to be to recapitalise??

First direct life time tracker is fixed at a 1.75% margin, thus giving 2.25% interest rate.

I have no idea about sub-prime 95% rates.

[billybong]

http://

www.moneywise.co.uk/news/2014-04-24/help-to-buy-rates-start-to-rise

Santander and Nationwide have upped the rates on two of their Help to Buy mortgage guarantee products.

Santander has increased the interest rate on its two-year fixed-rate deal available for mortgages up to 95% loan to value, from 4.99% to 5.09%. It remains fee-free.

NatWest/RBS has also increased its two-year fix from a rate of 4.99% to 5.39%.

...

...

"Clearly the introduction of the Help to Buy 2 scheme has stimulated increased activity in the higher loan to value (LTV) mortgage market, however it is not the case that lenders participating in Help to Buy are offering the best products and rates for those with small deposit levels."

The article is more of an advert than an article but it does have some information.

The rate increases might seem pretty small but they have to start somewhere.

Edited April 25, 2014 by billybong

[Bruce Banner]

Last week, a Treasury survey of City economists found that they all now expected the Bank of England key rate to rise in 2015, with some predicting rapid increases to 1.75pc during the year. The first increase is expected in the early summer.

Why not before.......?

Ah, yes....... the election .

[Corruption]

Why not before.......?

Ah, yes....... the election .

I think they will raise it before so the boomers who vote for them will forget about losing interest on their savings and forgive their beloved Tory party.

My parents generation really lack common sense.

[TheCountOfNowhere]

The article is more of an advert than an article but it does have some information.

The rate increases might seem pretty small but they have to start somewhere.

How would one obtain those "best rates" ? Would one have to become a LIAR TO GET SUCH A LOAN ?

[TheCountOfNowhere]

Even I'm tempted by Barclay's 10 year fixed at 3.89% - Seems quite cheap to me.

Does anyone have any idea where interest rates will be in 10 years time? What house prices will be in 10 years time?

Its not the cost of the mortgage that's the problem, its the cost of the house

[TheCountOfNowhere]

I think they will raise it before so the boomers who vote for them will forget about losing interest on their savings and forgive their beloved Tory party.

My parents generation really lack common sense.

They could easily raise rates 2 months before the election and sit on the bad news that pours out. It might even be better to loose the election, blame it all on labour then waltz back in ready to line the pockets of the bankers again.

[Wurzel Of Highbridge]

Its not the cost of the mortgage that's the problem, its the cost of the house

Surely the overall cost of a house for 99% of people is the cost over a 25 year period? Can't be assed to work it out at the moment, but somewhere along the lines if you can get a really low fixed rate for 10 - 25 years then it's comparable to buying a house cheaply with high rates.

[Sour Mash]

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10784520/Interest-rates-on-Help-to-Buy-mortgages-start-to-rise.html

I suspect that this is nothing to do with the cost of money rising but more a case of the banks getting their snouts into the trough and grabbing 'their' slice of the cheap money largesse that the government is showing with taxpayers money/support.

[thecrashingisles]

Surely the overall cost of a house for 99% of people is the cost over a 25 year period? Can't be assed to work it out at the moment, but somewhere along the lines if you can get a really low fixed rate for 10 - 25 years then it's comparable to buying a house cheaply with high rates.

Only if you ignore two important differences. With high rates every bit of the principal that is paid off has a bigger effect. You also need to consider the effect of inflation over the course of the mortgage. Most people who took out mortgages in the era of high rates ended up with insignificant monthly repayments because of wage inflation.

[zugzwang]

Even I'm tempted by Barclay's 10 year fixed at 3.89% - Seems quite cheap to me.

Does anyone have any idea where interest rates will be in 10 years time? What house prices will be in 10 years time?

After a hyperinflationary default? CPI 10% minimum + 10 million unemployed. House prices will be back to the 70s in real terms (see Japan)

[Sour Mash]

Only if you ignore two important differences. With high rates every bit of the principal that is paid off has a bigger effect. You also need to consider the effect of inflation over the course of the mortgage. Most people who took out mortgages in the era of high rates ended up with insignificant monthly repayments because of wage inflation.

Yep - the buyer is IMO better off with low prices and higher rates as you can overpay to reduce the overall load (if you show some financial discipline of course). If you borrowed a huge amount of capital in a time of low rates you don't have the same option.

Additionally, unless you managed to fix your interest rates over the 20-25 year period of repayment you are likely to find yourself at some stage having to pay high rates on a large amount of borrowed capital. The worst of all possible worlds.

Unfortunately, the average thicko doesn't bother to spend more than about half an hour pondering the ins and outs of the most important financial decision that they will ever make in their lives and borrowing multiples of their income to buy a house and thinks that high prices/low rates are the golden ticket to prosperity.

[Venger]

Surely the overall cost of a house for 99% of people is the cost over a 25 year period? Can't be assed to work it out at the moment, but somewhere along the lines if you can get a really low fixed rate for 10 - 25 years then it's comparable to buying a house cheaply with high rates.

No it's not.

3. Because it's a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down.

The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.

It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.

A low price lets you pay it all off instead of being a debt-slave for the rest of your life.

As interest rates fall, real estate prices generally rise.

Your property taxes will be lower with a low purchase price.

Paying a high price now may trap you "under water", meaning you'll have a mortgage debt larger than the value of the house. Then you will not be able to refinance because then you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.

You can refinance when you buy at a higher interest rate and rates fall, but current buyers will never be able to refinance for a lower interest rate in the future. Rates are already as low as they can go.

http://patrick.net/housing/crash1.html

[Venger]

Those Help-To-Buy rates not exactly teaser rate low are they, as they already are. Get them raised more to stop victims who only spend 5 minutes weighing up whether to buy (always yes at any price) outbidding me.

Two of my favourite posts... going to affect those who've been rushing to property, and the massive reflation we've seen, this mad-cap rush to assets, not-earning-anything-in-the-bank frenzy... in this teaser-rate environment - which could normalise.

Already need to commit big money down to get teaser rates. I wonder why?

I stick to the Lionel Ritchie rule, the once, twice, three times a lady rule. Its a rule of thumb rather than an article of faith so you'll have to excuse the broad generalisation.

Borrow £10,000 (once) results in a typical repayment of £20,000 (twice) which for a typical basic rate taxpayer means earning £30,000 (three times). Or, to put it in plainer terms, an additional £10,000 offered is equivalent to a years work at average salary and even better offer £10,000 less and you could retire a year earlier. Instead we fixate on lending multiples at gross earnings which neglects tax and interest.

My calculations show a rate of 6.37% results in interest of £400,000 over 25 years (well £400,527) on a £400,000 mortgage, say buying at £450,000 (£50K deposit) in Nomadd's example below. (Thus full repayment = £800K over 25 years)

Well, based on the loan value for standard SVR mortgage I've just looked at on my Banks website, you would actually be looking at £400k interest on a £400k loan over the next 25 years (that's if interest rates stay as low as they currently are - which I don't think anyone believes will happen.)

Now, look at some of the daft £450k terraced houses in Hale we've been discussing on the Hale & Alty thread. I can easily see those dropping by at least 10-20% in value over the next 5 years; maybe much more. But even at just over a 10% fall and no rises in interest rates, that's your £50k deposit gone (plus the loss of the interest it could have earned in an ISA/etc..) And in the first 5 years of mortgage payments, at £2.6-2.7k per month? Well, you've only paid off £26k of your house. But remember the interest on the loan? That's cost you another £121k in just the first 5 years. So, after 5 years, you are ~£180k down on a £450k house - if interest rates don't go up at all and your house only drops in value by about 12%. The reality is likely to be something much more severe, IMHO - a 30% fall in prices and interest rates at just 2% higher than today gives a loss of over £300k on a £450k house in just five years. And what have you got for that £180k-£300k of investment? Just £26k worth of equity in a house (and minus all your other costs for 5 years - moving costs, stamp duty, maintenance, etc., you don't even have that!)

So that, to me at least, is what is so frightening about buying in the current market. Not a single young person under the age of 35 I speak to can afford to buy at current prices. And for those that do, the doubling and trebling of houses prices needed to wipe out the enormous amount of interest they'd paid in the first 5-10 years of ownership is just not going to happen. Scary stuff indeed.

Hence why I rent cheaply and push cash onto the "buy-outright when prices fall-back" fund.

Edited April 25, 2014 by Venger

[Venger]

What house prices will be in 10 years time?

60-70% lower than today, in my opinion.

The Help to Buy mortgage guarantee scheme was launched early with much fanfare last October.

The aim was that the government would guarantee up to 15 per cent of a mortgage on properties worth up to £600,000. The lender would pay a fee for the guarantee and then have the confidence to provide a 95 per cent loan-to-value mortgage, with the borrower just needing to raise a 5 per cent deposit.

It all started well with stablemates RBS and Natwest the first lenders out of the blocks, offering a decent fee-free two-year fixed rate at 4.99 per cent and a five-year rate at 5.49 per cent.

While the same rates are still available from RBS, Natwest has upped its rates to 5.49 per cent for a two-year fix and 5.89 per cent for a five-year deal.

It is not the only one, Santander previously offered a fee-free two-year Help to Buy fixed rate at 4.99 per cent, it is now priced at 5.09 per cent.

Aldermore had a two-year Help to Buy rate at 5.28 per cent, but you would now need to pay a rate of 5.48 per cent.

Even the longer term Help to Buy rates have been going up, with HSBC's Help to Buy five-year rate moving from 4.99 per cent to 5.19 per cent. This was previously a top rate, and now means there are no long term Help to Buy rates under 5 per cent.

Money market swap rates, which heavily influence the cost of fixed rate mortgages, have shifted up over this period. With five-year swaps rising from about 1.8 per cent to almost 2 per cent, however, the big margin between these and actual 5 per cent deposit mortgage costs give lenders plenty of room for manoeuvre. The cost of getting in funds to lend out through mortgages from savers should have remained at least steady or fallen, with savings rates dropping since the launch of Help to Buy 2.

David Hollingworth, of This is Money partner broker London & Country, says: 'The choice for borrowers and the range of lender options remains much better for borrowers, largely as a result of Help to Buy. There could be a number of reasons for the increases in rates.

'That could be an increase in funding costs although it is possibly more likely that lenders are adjusting to competitor movement and managing the inflow of business volumes.'

http://www.thisismoney.co.uk/money/mortgageshome/article-2612051/Help-Buy-mortgages-getting-expensive-scheme-worth-backing.html

Oh and the small matter of that HTB 'fee' after a certain amount of years... 1.5% or something of the mortgage.

Edited April 26, 2014 by Venger