Jump to content
House Price Crash Forum
zugzwang

25/30 Year Fixes Coming To The Uk 'within Months'

Recommended Posts

Looks like the next bubble perpetuation gimmick from Red George.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11090386/Mortgages-you-can-fix-for-30-years-expected-within-months.html

Lenders could introduce 30-year fixed-rate mortgages in the next few months, according to experts, offering millions of borrowers the chance to lock in their rate for the length of the loan.

Long-term mortgage funding has become cheap for lenders on the wholesale markets. Experts expect the launch of fixed deals that run for up to 30 years, with reduced early repayment charges to attract borrowers.

Ray Boulger, of broker John Charcol, said that while these products had not been popular in the past, it was more viable than ever for lenders to offer longer-term fixes.

“There is every likelihood that we will see some lenders offering 20, 25 or 30-year deals by the end of the year,” he said.

Long-term fixes are common in other countries but have never taken off in Britain because they were expensive for lenders to offer and lumbered borrowers with heavy early repayment penalties. These are usually a percentage of the loan and can run as high as 6pc.

The longest deals available today are 10-year fixes, although two and five-year deals are the most popular.

The pricing of fixed-rate mortgages depends mainly on whether banks can access cheap money to lend. They usually get it by borrowing from other banks on wholesale money markets, buying money at a certain rate – the “swap” rate – for a certain period of time. These swap rates react to expectations of future interest rates.

The difference between five-year and 30-year swap rates has plummeted in recent weeks thanks to market expectations that a rate rise is some way off. Lenders can access five-year funding at 1.97pc, while 30-year funding costs 3.01pc. This difference or “spread” – 1.04 percentage points – is down from 1.68pc a year ago.

“Over the last couple of weeks the spread between five and 30-year swaps has fallen to the lowest point I can remember. Last week it was 0.9 percentage points and while it has gone up since then it is still very low,” Mr Boulger said. “Lenders could offer competitive deals that really appeal to borrowers who are worried about interest rate rises and want long-term certainty over their repayments.”

For these deals to be popular, lenders would need to remove or limit early repayment charges. This would give borrowers more flexibility if they wanted to move house, repay the loan more quickly or remortgage at a better rate.

Andrew Montlake of brokerage Coreco said price and flexibility were key to a successful long-term fix. “There are plenty of people who want the security of a long-term fixed rate,” he said. “Families with young children at local schools are a prime example. But they generally don’t want to be locked in. Rates would need to be similar to 10-year fixes, which are currently priced between 3.99pc and 4.49pc, to be attractive.”

Mr Montlake said features that allowed borrowers to repay a lump sum or redeem the loan early were popular.

Cheshire Building Society, now part of Nationwide, has in the past offered borrowers a one-month window every two years when they could repay the mortgage early without penalties. This applied to mortgages with terms of up to 25 years.

Other lenders have early repayment charges that reduce over the life of the loan, or disappear altogether after the first few years.

Mr Boulger said with 30-year swaps priced at around 3pc, lenders could afford to scrap early repayment penalties altogether.

Lenders will have to change their approach to early repayment charges anyway, to comply with the European Mortgage Credit Directive. Under the directive, which will come into force in 2016, lenders will only be allowed to impose charges that reflect the true cost of a borrower paying off their loan early.

In 2007 Gordon Brown, then prime minister, said he wanted to make longer fixes more available. Nationwide responded with a 25-year fix that cost 6.39pc. During the first 10 years of the loan, borrowers faced an early repayment charge of 3pc.

Share this post


Link to post
Share on other sites

Expected.

wow - a thirty year fix at 3% would be a no brainer for anyone, as long as there was an ability to repay early. Does anyone really believe we will have no high inflation/interest periods in the next 30 years?

Share this post


Link to post
Share on other sites

You'd have to be completely puddled to pay a bank an insurance premium for 30 years to fix their risk.

Just look at the path of rates over the last 30 years.

One for the suckers only, of whom I'm sure there will be plenty.

Share this post


Link to post
Share on other sites

You'd have to be completely puddled to pay a bank an insurance premium for 30 years to fix their risk.

Just look at the path of rates over the last 30 years.

One for the suckers only, of whom I'm sure there will be plenty.

I don't know. I would consider borrowing some extra money for solar panels or anything else that may pay back over 3%. Might even try my hand at BTL :P

Share this post


Link to post
Share on other sites

wow - a thirty year fix at 3% would be a no brainer for anyone, as long as there was an ability to repay early. Does anyone really believe we will have no high inflation/interest periods in the next 30 years?

AND, they didnt ever want to move.

Share this post


Link to post
Share on other sites
The pricing of fixed-rate mortgages depends mainly on whether banks can access cheap money to lend. They usually get it by borrowing from other banks on wholesale money markets, buying money at a certain rate – the “swap” rate – for a certain period of time. These swap rates react to expectations of future interest rates.

No rate raises then?

Share this post


Link to post
Share on other sites

Free market economics:

Land: £5k to £10k an acre (£1k a plot)

£4k to install services/road/utility per plot

£55k to build a basic 3bed detached

£60k All in.

THATS market economics.

If only the under 40s weren't all communists who could see this, form a free market property rights government, they would free themselves from a life time of debt servitude to the banksters.

Share this post


Link to post
Share on other sites

wow - a thirty year fix at 3% would be a no brainer for anyone, as long as there was an ability to repay early. Does anyone really believe we will have no high inflation/interest periods in the next 30 years?

Amazing. :wacko: Still the recent history of Japan is disregarded

Share this post


Link to post
Share on other sites

Interesting. If these came in (and they're commonplace in the US), then the future impact of rising rates on the economy as a whole would be much less, since fewer borrowers would be affected. This would mean interest rates would have to rise more to have the same deflationary effect. Which means it makes it easier for interest rates to return to normal (long run average of 4-5%).

Share this post


Link to post
Share on other sites

Interesting development as for people like myself who are tied to local schools for kids and work from home / locally then a 20 or 25 year fix with low early redemption penalties could make sense and I'm surprised it's taken this long for more than 10 year fixes to make it here.

Share this post


Link to post
Share on other sites

I wonder if they will be US style with no early redemption penalties. In that case definitely no brainer.

The issue is that in the early years, they are more or less IO Mortgages, so moving early has its own penalty simply by the fact they are repaid.

Share this post


Link to post
Share on other sites

I don't know. I would consider borrowing some extra money for solar panels or anything else that may pay back over 3%. Might even try my hand at BTL :P

There is that. But you'd need to be sure the rate of return was more than the cost over the term.

I'm in favour or flexibility, especially on mortgages. Base rate trackers or even variable rates where you don't keep paying fees to the lender and are effectively leveraged to wage rises. When rates are rising in nominal terms, so are wages and so are nominal house prices. When there's a recession rates are falling.

Anyone fixing in 06/7 looked like a muppet when the Boe slashed rates.

Always find it rather bizarre that people think paying a premium to give up flexibility is a good idea. Think of all those businesses that were suckered into rate swaps before the crash. Many of them went bust 'cause they'd been sold these rate swaps on the understanding rates could only go up. Even the bank salesmen had no idea what they were selling. There's a future mis-selling scandal all over these products. Can see it a mile off.

Edited by R K

Share this post


Link to post
Share on other sites

The issue is that in the early years, they are more or less IO Mortgages, so moving early has its own penalty simply by the fact they are repaid.

Good point. D'oh! on my part.

Share this post


Link to post
Share on other sites

It seems to imply that the UK economy is going to be dead beat for at least another 30 years with consequent low interest rates.

It seems to imply that the UK economy is going to be dead beat for at least another 30 years with consequent low interest rates.

I think it implies return of capital in an economy stable, but under repression.

Share this post


Link to post
Share on other sites

Interesting development as for people like myself who are tied to local schools for kids and work from home / locally then a 20 or 25 year fix with low early redemption penalties could make sense and I'm surprised it's taken this long for more than 10 year fixes to make it here.

Nationwide 5yr fixes used to have a 5% early redemption penalty. So a 25 year fix penalty will be likely be massive and so too I expect the interest rate.

Share this post


Link to post
Share on other sites

There is that. But you'd need to be sure the rate of return was more than the cost over the term.

I'm in favour or flexibility, especially on mortgages. Base rate trackers or even variable rates where you don't keep paying fees to the lender and are effectively leveraged to wage rises. When rates are rising in nominal terms, so are wages and so are nominal house prices. When there's a recession rates are falling.

Anyone fixing in 06/7 looked like a muppet when the Boe slashed rates.

Always find it rather bizarre that people think paying a premium to give up flexibility is a good idea. Think of all those businesses that were suckered into rate swaps before the crash. Many of them went bust 'cause they'd been sold these rate swaps on the understanding rates could only go up. Even the bank salesmen had no idea what they were selling. There's a future mis-selling scandal all over these products. Can see it a mile off.

I do agree with you I took out a life time tracker at 0.17% above base in 2007 and so far I have been quite happy with it. :)

I wouldn't want to invest in solar panels with my own money when I have been getting around 15% return from the stock market.

I might be having a logic failure but I wouldn't want to invest in solar panel unless I was guaranteed to win. So a low fixed rate sounds good.

Share this post


Link to post
Share on other sites

There is that. But you'd need to be sure the rate of return was more than the cost over the term.

I'm in favour or flexibility, especially on mortgages. Base rate trackers or even variable rates where you don't keep paying fees to the lender and are effectively leveraged to wage rises. When rates are rising in nominal terms, so are wages and so are nominal house prices. When there's a recession rates are falling.

Anyone fixing in 06/7 looked like a muppet when the Boe slashed rates.

Always find it rather bizarre that people think paying a premium to give up flexibility is a good idea. Think of all those businesses that were suckered into rate swaps before the crash. Many of them went bust 'cause they'd been sold these rate swaps on the understanding rates could only go up. Even the bank salesmen had no idea what they were selling. There's a future mis-selling scandal all over these products. Can see it a mile off.

How can there be a future mis-selling scandalon these ?

Yes Carney has brought in forward guidance but this is fairly short term. He has talked a bit about the new normal. Do you expect all fixed rate mortgage finance to be included in future misselling?

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   218 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.