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Mortgage Misery For 3Million Households: Those On Punitive Standard Variable Rates Have To Pay An Extra £4Billion A Year

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http://www.dailymail.co.uk/news/article-3141178/Mortgage-misery-3million-households-punitive-standard-variable-rates-pay-extra-4billion-year.html

  • Record low interest rates have started price war between mortgage lenders
  • But around 3.2million households are missing out on the rock-bottom rates
  • They are being charged £1,272 more every year on 'standard variable rates'
  • Many of them will soon be unable to pay their mortgages, experts have said

More than three million homeowners are saddled with expensive mortgage deals that are costing an extra £4billion a year.

Record low interest rates have sparked a price war between lenders, with experts describing it as the best time ever to take out a mortgage.

But around 3.2million households – almost a third of the 11.1million with a mortgage – are missing out on the rock bottom rates.

They are on expensive 'standard variable rate' mortgages and are being charged £1,272 per year more on average than if they were switched to a better deal.

This equates to a total of £4.1billion in extra annual interest payments, according to mortgage broker London & Country.

Last night one expert described this as a 'ticking time bomb' and predicted that many of these households will be unable to afford to pay their mortgages if interest rates rise significantly.

Standard variable rates are the default loans offered by lenders. Borrowers are automatically flipped onto one of these mortgages when their fixed-rate or tracker deal expires.

Experts estimate that a huge number of people who have been on these deals for years are unaware they are paying over the odds.

The trouble with this poor analysis is the numbers aren't given for those stuck on SVR for pre 2008 deals and those post. SVR now are hugely profitable for the banks once the teaser rate has ended.

Although this does come across as a nice VI piece to get people to sign up for a new fixed deal with a nice fee attached.

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Terrible news. Evil banks and evil government trying to get their hands on the unearned and largely untaxed 'wealth' of 'hardworking families.'

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SVR was the standard, and presumably still is.

The teaser rates etc. were only ever loss leaders to get people signed up.

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http://www.dailymail.co.uk/news/article-3141178/Mortgage-misery-3million-households-punitive-standard-variable-rates-pay-extra-4billion-year.html

The trouble with this poor analysis is the numbers aren't given for those stuck on SVR for pre 2008 deals and those post. SVR now are hugely profitable for the banks once the teaser rate has ended.

Although this does come across as a nice VI piece to get people to sign up for a new fixed deal with a nice fee attached.

This is the thing. I sat down and did the maths and the fees involved in switching mortgages every time your deal come to an end wipes out any profit of taking out a new deal. I opted for a life time tracker @ 0.17% above base glad I did now.

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But I never remember these fixed rate teaser rates back in the 80's and 90's, you just went straight on the SVR as I remember it. I was a teen/20's during that time so I might have got it wrong? Anyone old enough to remember/chime in?

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Record low interest rates have sparked a price war between lenders, with experts describing it as the best time ever to take out a mortgage.

Dumb "experts". A smaller percentage of a big sum can mean paying more than a bigger percentage of a smaller sum. Too nuanced, I know....let's just look at the interest rate, and forget the capital value.

Edited by canbuywontbuy

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This is the thing. I sat down and did the maths and the fees involved in switching mortgages every time your deal come to an end wipes out any profit of taking out a new deal. I opted for a life time tracker @ 0.17% above base glad I did now.

Fine, but even those on super-low rates aren't protected from HPC to the value of their own homes, in a HPC, where others sell for lower prices.. whatever the triggers for them doing so (one being a chunk going and staying on higher SVRs).

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Fine, but even those on super-low rates aren't protected from HPC to the value of their own homes, in a HPC, where others sell for lower prices.. whatever the triggers for them doing so (one being a chunk going and staying on higher SVRs).

Let my house fall in value by 50% I don't care. Much more worried about my shares falling in value. My house may have gone up by thousands in value but it wont buy a single pint down the pub.

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Good one gf3. :)

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I've got a context on this. In the Soviet era there were two newspapers, Izvestia (tr. The News) and Pravda (tr. The Truth) - as an aside it's amusing that Russell Brand's portmanteau Trews is a callback to this, intentionally or otherwise.

The Soviet joke was, "There's no news in The Truth and no truth in The News"

The Mail piece is just a bully pulpit for a bunch of vested interests and the putative public defender is the ambiguous Martin Lewis who makes this 'point':

'This is a ticking time bomb,' he said. 'If interest rates go back up to around 4 per cent then unless the margins come down on SVRs households will be paying 8 per cent. This will lead to massive repossessions and huge arrears.'

Source: Article in OP

However, unlike poor old Dmitri and Vladimir in 1960s Moscow, we have the internet...

One of the points we have made—and I think people may be getting a little tired of this, but I am going to make it again—is that we expect interest rate increases, when they happen, to follow a gradual path and rise to a limited extent. There are many reasons for the word “limited”, but one of the reasons is exactly your point, which is that we think there is going to be a higher intermediation spread, the cost of capital and the greater cost of liquidity, that will be passed on by banks, so that the net cost to the borrower is the same. It may not be the same as the pre-crisis excess, but it will be the same as it should have been maybe in the mid-2000s, mid-1990s, so it is the same level. The risk-free rate is likely to be lower; we adjust the risk-free rate lower.

Source: Governor's Evidence to House of Lord Economic Affairs select committee

Lewis is conjuring up some fantasy goon of 8% SVRs in order to argue for an erosion of lending standards. From the median household's point of view, with friends like that, who needs enemies?

Edited by bland unsight

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Let my house fall in value by 50% I don't care. Much more worried about my shares falling in value. My house may have gone up by thousands in value but it wont buy a single pint down the pub.

Ever considered MEW it would buy you several thousand pints... :ph34r:

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But I never remember these fixed rate teaser rates back in the 80's and 90's, you just went straight on the SVR as I remember it. I was a teen/20's during that time so I might have got it wrong? Anyone old enough to remember/chime in?

I took out a mortgage in 93,repayment ,8.2% fixed for 5 years i think it was but cant remember.I was 22 and the mortgage didnt really affect my life as it was about 13% of net pay.

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This is the thing. I sat down and did the maths and the fees involved in switching mortgages every time your deal come to an end wipes out any profit of taking out a new deal. I opted for a life time tracker @ 0.17% above base glad I did now.

When it came to renewing the last deal I had cheaper options, but once you considered the fee taking the higher interest rate deal with no fee was the cheaper option.

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emotive words -

mortgage misery

punitive rates

as far as I can see, SVR rates are not excessively high (and SVRs were the norm when I took out a mortgage in the late 70s, early 80s )

if these 'poor mortgage holders' were able to re-mortgage at a lower rate they are not forced to stay on SVR - but the most usual explanation is that they cannot re-mortgage because of low LTV, negative equity or would fail the MMR criteria.

Edited by olliegog

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This is the thing. I sat down and did the maths and the fees involved in switching mortgages every time your deal come to an end wipes out any profit of taking out a new deal. I opted for a life time tracker @ 0.17% above base glad I did now.

I'll just jump in my time machine then.

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