Prepare For Mortgage Rates At 8%

[It is different this time]

Sit tight & save hard as GC2 is coming to a Town near you , preparing for mortgage rates @ 8%? - ouchh!!! that'll hurt

http://business.timesonline.co.uk/tol/busi...icle1813017.ece

From The Sunday Times May 20, 2007

Prepare for mortgage rates at 8%

City experts warn that repayments are set to rise to a 10-year high. Learn how you can protect yourselfClare Francis

HOMEOWNERS were last week warned to brace themselves for mortgage rates at 8%, their highest for a decade, as the Bank of England seeks to curb inflation.

Legal & General, the City’s biggest fund manager, with assets of £240 billion, said last week that Bank rate would have to go to at least 6% – forcing up lenders’ standard mortgage rates, which are typically two percentage points higher.

James Carrick at L&G said: “We believe interest rates will get to that level either later this year or early next year,” he said. “The risk is then balanced as to whether they rise further. It will all depend on whether we see a slowdown in the global economy. If we don’t, Bank rate could go to 6.5%.”

ABN Amro, an investment bank, M&G, a fund manager, and Capital Economics, a con-sultancy, share L&G’s views.

More than 2m borrowers on their lenders’ standard variable rates (SVR) would face paying 8% if they are right. Many people are still on the SVR either because they have come to the end of a fixed or discounted offer, they are trapped by a redemption penalty, their mortgage is too small to switch, or they have simply failed to remortgage.

Another 4m homeowners on discounted variable rates or trackers would see their rates go up from a typical 5.5% at the moment to 6%, taking monthly repayments on a £200,000 interest-only home loan from £917 to £1,000 – an extra £1,000 a year.

Repayments have already gone up by £2,000 a year since August following four quarter-point hikes from 4.5% to 5.5%.

Melanie Bien of Savills Private Finance, a broker, said: “Interest rates at 6% may seem farfetched, but it is only six months ago that people thought they would peak at 5% – and we are already at 5.5%. Homeowners should be working out if they could cope with repayments at 6% as a matter of urgency.”

The consensus among economists is still that rates will peak at 5.75%, but they have been consistently wrong. In a survey by Reu-ters, a data firm, earlier this month, two-thirds thought Bank rate would peak at 5.5%.

However, last week’s inflation report from the Bank of England indicated rates would need to go to at least 5.75% to bring inflation back down to its target – and now more than half of economists think we will get another quarter-point rise in the summer.

Hundreds of thousands of borrowers already face mortgage rates of close to 8% because lenders have raised their SVRs by more than this month’s quarter-point hike in Bank rate. Bank of Scotland announced last week that its standard rate was going up by 0.35 points to 7.85% on June 1.

Birmingham Midshires and NatWest borrowers could be in a similar position. Neither lender has yet responded to this month’s rise, but their SVRs are already significantly higher than average at 7.59% and 7.44% respectively. Even if they go up by only 0.25 points, borrowers will be charged 7.84% and 7.69%.

When Bank rate was last 5.5%, in 2001, the typical SVR was 6.9%. It is now 7.5%, boosting lenders’ profits by nearly £700m a year.

David Hollingworth at L&C Mortgages, a broker, said: “Most people paying SVR should remortgage now. They could cut repayments by thousands of pounds a year.”

With so much uncertainty over interest rates, borrowers will be wondering whether to opt for a fix or a discount. While a handful of analysts predict Bank rate will hit 6%, the majority think 5.75% will be the peak and investment banks Goldman Sachs, HSBC, Merrill Lynch and UBS suggest rates will stay at 5.5%. HSBC and Merrill Lynch even think Bank rate will be back at 5% by the end of 2008.

Ray Boulger at John Charcol, a mortgage broker, said: “I think the housing market and consumer spending will slow down much more quickly from here as four rate rises start to bite. This will help take the pressure off the Bank of England. I think it is 50:50 as to whether rates go to 5.75% or not.” The best two-year fix for remortgages is at 5.34% from either Abbey or Halifax, but Alliance & Leicester has a tracker that is 0.31 points below Bank rate for two years, or 5.19%. If Bank rate rises once more, to 5.75%, the A&L tracker would go up to 5.44% – more than the fix.

Whether the tracker works out more expensive over the two-year term depends on how long rates stay at 5.75%. If they fall back to 5.5% in February, the tracker will work out £263 cheaper, according to L&C. But if rates go to 5.75% in August and stay there, the fixed deal will be better value.

Andrea and Duncan Carmichael from Bur-well in Cambridgshire recently remortgaged on to a three-year tracker from BM Solutions. Andrea, 29, said: “It’s obviously a concern that rates could rise further, but at the moment we are still paying less than the fixed deal that we considered and hopefully rates will start falling back again next year so this will prove to be the better-value option.”

How banks are fleecing us – again

THE Bank of England has confirmed what savers and borrowers know from bitter experience – banks and building societies use interest-rate changes to widen their margins and boost profits.

Figures buried in the Bank’s latest inflation report reveal that while Bank rate rose by 0.75 points between August and January, the average savings rate went up by only 0.38 points, while mortgage rates were 0.7 points higher.

The big banks are expected to rake in an extra £1.5 billion in profits this year on the back of the four interest-rate increases we have seen since last August, according to Credit Suisse, an investment bank.

Most institutions have yet to respond to this month’s quarter-point increase, but the early indications are that many will fail to pass on the full rise to savers, or hike their mortgage rate by more.

What is happening to my savings rate?

Most providers will not change rates until the beginning of June – a strategy that boosts profits by £6m a day, according to Moneysupermarket, a price-comparison website.

However, some providers have announced rate changes – and the news is bad. Abbey is advertising rate increases of up to 0.8 percentage points, but on closer inspection few people will benefit. Only those with more than £100,000 in its Branch Saver account will see their rate rise by 0.8 points, from 4.2% to 5% – assuming they make no withdrawals.

Most of Abbey’s savings accounts are going up by between 0 and 0.25 points. Those with between £1 and £10,000 in the Branch Saver will see their rate go up by only 0.05 points, from 3.95% to 4%. All changes will take effect on June 1.

Northern Rock has also let down savers. Despite being called a tracker, its Save Tracker Direct account is going up from 3.95% to just 4.1%, while the Base Rate Tracker is rising from 3.65% to 3.8%. The new rates take effect on June 9.

Northern Rock savers have been routinely short-changed. Bank rate is one percentage point higher than it was this time last year, yet Northern Rock’s Base Rate Tracker is only paying 0.55 points more, and the Saver Tracker Direct is just 0.6 points higher.

The bank points out the rate on its Silver Savings Online account, an internet account available to those aged 50 or above, is rising by 0.19 points to 6%, having already gone up by 0.1 points on May 1.

Sue Hannums at AWD Chase de Vere, an adviser, said: “Savers have to be vigilant. Providers often have ‘flavour of the month’ accounts, which benefit from interest-rate rises in full, while the rates on other products are left by the wayside.”

Have any savings providers passed on the full quarter point increase? Yes. ICICI’s Hisave account is paying 6.05%. Icesave offers 5.95% on its easy-access account, and Anglo-Irish Bank has increased its easy-access rate to 5.85%.

What about mortgage rates? If you have a tracker mortgage that is linked to Bank rate, your rate will automatically rise by 0.25 percentage points. However, if you are paying your lender’s standard variable rate or have a discounted deal any rate increase is at the lender’s discretion. So far, no lender has said its SVR will rise by less than a quarter point, but several are putting their rates up by more.

Bank of Scotland’s rate will rise by 0.35 points to 7.85% – the highest SVR on the market. It has gone up by 1.25 points since August, even though Bank rate is only one point higher.

Intelligent Finance and Standard Life Bank’s SVRs are going up by 0.35 points to 7%, and 0.3 points to 7.06%.

Lenders argue that only a minority of borrowers are still paying the SVR. But lenders like Standard Life still offer short-term discounts linked to SVR rather than Bank rate, so these will also rise by more than they should.

[nohpc]

Sit tight & save hard as GC2 is coming to a Town near you , preparing for mortgage rates @ 8%? - ouchh!!! that'll hurt

http://business.timesonline.co.uk/tol/busi...icle1813017.ece

This article refers to lenders Standard variable rates. Nobody uses these. Most mortgages are approx 2-3% below the lenders SVR. I personally will not be fixing my rate because I think we are near the peak but it is a gamble. BoE base rate trackers at least cannot be fudged (e.g when banks increase their SVR by more than the base rate)

Edited May 20, 2007 by nohpc

[bomberbrown]

This article refers to lenders Standard variable rates. Nobody uses these. Most mortgages are approx 2-3% below the lenders SVR.

So how are the banks gonna make their money back?

OK, it was a rhetorical question, but personally I think the banks might think about squeezing those suckers that can afford the extra £ a month to keep paying the mortgage.

Basically, there's a lot of folk out there that won't be too keen to just hand the keys back over to the bank.

Slave to the bank or slave to a BTL? Take your pick, one has a 25 year notice period, the other has a 2 month period.

[salamander]

This article refers to lenders Standard variable rates. Nobody uses these. Most mortgages are approx 2-3% below the lenders SVR. I personally will not be fixing my rate because I think we are near the peak but it is a gamble. BoE base rate trackers at least cannot be fudged (e.g when banks increase their SVR by more than the base rate)

It might be true that no-one chooses the SVR, but in order to avoid it at the end of, for example, a fixed term you would need to remortgage. It will almost certainly be the case that any potential new lender will require a basic survey including an up to date valuation before they will give you the mortgage. If prices have fallen to the extent where you are in negative equity at this time it is very unlikely that you will be granted the new mortgage so will be stuck with the SVR offered by your existing lender. Oh dear

[nohpc]

It might be true that no-one chooses the SVR, but in order to avoid it at the end of, for example, a fixed term you would need to remortgage. It will almost certainly be the case that any potential new lender will require a basic survey including an up to date valuation before they will give you the mortgage. If prices have fallen to the extent where you are in negative equity at this time it is very unlikely that you will be granted the new mortgage so will be stuck with the SVR offered by your existing lender. Oh dear

If you remortgage with the same lender they will not "revalue" your property. If you have been keeping up with repayments you will be eligible to switch to a better deal. If you want to move your mortgage to another company and you are in negative equity you will not be able to do this.

[nohpc]

So how are the banks gonna make their money back?

OK, it was a rhetorical question, but personally I think the banks might think about squeezing those suckers that can afford the extra £ a month to keep paying the mortgage.

Basically, there's a lot of folk out there that won't be too keen to just hand the keys back over to the bank.

Slave to the bank or slave to a BTL? Take your pick, one has a 25 year notice period, the other has a 2 month period.

I love the way that people think anybody with a mortgage is a debt "slave" to the bank

[salamander]

If you remortgage with the same lender they will not "revalue" your property. If you have been keeping up with repayments you will be eligible to switch to a better deal. If you want to move your mortgage to another company and you are in negative equity you will not be able to do this.

My bad. Didn't realise that a current lender is obliged to let you switch to a better deal, even in negative equity situations. Thanks for the correction.

[nohpc]

My bad. Didn't realise that a current lender is obliged to let you switch to a better deal, even in negative equity situations. Thanks for the correction.

I wouldn't say they are obliged to do anything. Generally though, when you remortgage with your current lender they will not base it on the current value of your home.

[Guest Bart of Darkness]

HOMEOWNERS were last week warned to brace themselves for mortgage rates at 8%, their highest for a decade, as the Bank of England seeks to curb inflation.

Have the current members of the MPC all been sacked then? Those spineless cretins wouldn't raise rates to 8% if their aged mothers life depended on it.

[Guest barebear]

1/ Existing lenders are'nt obliged to let you switch to a more favourable rate,they will only offer another fixed rate if they have one at the time.Are there many fixed rates at the moment?

2/In the past you were allowed to take your negative equity with you when selling or re-mortgaging.

3/Points 1 and 2 become irrelavent if there is a recession and HPC and you lose your job.

4/We are all slaves to something or other be it the bank, the landlord or the wife.

[margesimpson]

4/We are all slaves to something or other be it the bank, the landlord or the wife.

Not true.

[Guest barebear]

Not true.

Why ?

[Fishy]

I wouldn't say they are obliged to do anything. Generally though, when you remortgage with your current lender they will not base it on the current value of your home.

I have never heard of a remortgage (even with the same lender) where there wasn't a valuation done.

Even if this is the case, I would suspect that when (and that is a WHEN) prices start to drop, EVERY remortgage would require a valuation. The banks will need to cover themselves, as well as work out if the equity is indeed enough to cover the loan.

If credit does start to dry up as rates increase, the folks with the -ve equity won't be able to get the banks' low fixed rates because the banks will need to price in some risk.

It's a no win situation for anyone that has recently bought and is mortgaged to the hilt, because 'This is the last chance to get onto the ladder before prices get too high'

The spin really does take my breath away...

[Sinking Feeling]

Interest rates at 6% may seem farfetched

Why should 6% seem far fetched? Are peoples' financial memories so short- 6% is still historically quite low, even 8% is only a little above average!

One of the members of the BoE said in late 2003 that IRs were set to rise over the next 10 years upto at least 8%. The BoE has stated on several occasions that it expects a period of higher interest rates so why do people keep spouting this rubbish. The general public is already up to its collective neck in debt and it seems that China has expanded to the extent where it is starting to achieve massive economies of scale. Therefore lower IRs would just feed through into 1970s style inflation.

[WSG]

If you remortgage with the same lender they will not "revalue" your property. If you have been keeping up with repayments you will be eligible to switch to a better deal. If you want to move your mortgage to another company and you are in negative equity you will not be able to do this.

They did revalue some properties in the last crash...and that was residential properties, they will be merciless with BTL mortgages this time as they attempt to limit their exposure to risk and they will try to drive the bad debtors off their books.

[Guest barebear]

They did revalue some properties in the last crash...and that was residential properties, they will be merciless with BTL mortgages this time as they attempt to limit their exposure to risk and they will try to drive the bad debtors off their books.

BTL'ers trying to refinance in a falling market with rising interest rates,will have problems.It will then be the banks remit to call the loans in and repossess when payments are missed instead of trying to help them out.

Remember whatever the circumstances the banks CANNOT lose,the rest of us dance to their tune.

[laurejon]

This article refers to lenders Standard variable rates. Nobody uses these. Most mortgages are approx 2-3% below the lenders SVR. I personally will not be fixing my rate because I think we are near the peak but it is a gamble. BoE base rate trackers at least cannot be fudged (e.g when banks increase their SVR by more than the base rate)

I love this one "I will not be fixing my rate because I think we are near the peak"

God!!!! I wish I was young again, naive, completely oblivious to what is going on around me. Ignorance must be bliss.

The poster owes me for dry cleaning, as the entire office have p1ssed their pants laughing when I showed them this.

I must thank you for bringing some humour to another boring Sunday at work.

[bomberbrown]

I love the way that people think anybody with a mortgage is a debt "slave" to the bank

Are you endebted to the bank for the value/duration of the loan or not? Dress it down however much you like.

5 years ago, I would have been endebted to the bank for the 1 bedroomed flat next door for £150,000. Today I would have to endebt myself for the princely sum of £295,000 (thats the asking price), almost double the 2002 figure.

I'd rather sleep rough, lose my job and go on the dole before I enslave myself to that!

[Killer Bunny]

Have the current members of the MPC all been sacked then? Those spineless cretins wouldn't raise rates to 8% if their aged mothers life depended on it.

Er...the piece wasn't talking about the Repo (Base) rate going to 8%.

[dpg50000]

I have never heard of a remortgage (even with the same lender) where there wasn't a valuation done.

When I remortgaged last August with the same lender (Nationwide) they didn't even ask to see my proof of income (even though I had my last 4 months of payslips with me) and they certainly didn't do any revaluation (I've had the house 6 years so loads of equity) - they just put it's value down based on a formula they had, which turned out to be quite close to it's proper market value.

[nohpc]

I love this one "I will not be fixing my rate because I think we are near the peak"

God!!!! I wish I was young again, naive, completely oblivious to what is going on around me. Ignorance must be bliss.

The poster owes me for dry cleaning, as the entire office have p1ssed their pants laughing when I showed them this.

I must thank you for bringing some humour to another boring Sunday at work.

Yea because it's not as if people who know what they are talking about have said that rates are near their peak as well. Get over yourself ya *****.

[frugalista]

If you remortgage with the same lender they will not "revalue" your property. If you have been keeping up with repayments you will be eligible to switch to a better deal. If you want to move your mortgage to another company and you are in negative equity you will not be able to do this.

Your current lender has no obligation to offer you a better deal than their SVR. If you are in negative equity and therefore cannot remortgage with a different lender, you have no bargaining power. Your lender would have to make a judgement as to whether to allow you to pay less interest, but given that you have no alternative, they could easily just leave you on the SVR. They might make you an offer which would benefit them in the long term, e.g. some kind of lower rate with an extended tie-in or something else they thought was to their commercial advantage, but they might not.

frug.

[ParticleMan]

When I remortgaged last August with the same lender (Nationwide) they didn't even ask to see my proof of income (even though I had my last 4 months of payslips with me) and they certainly didn't do any revaluation (I've had the house 6 years so loads of equity) - they just put it's value down based on a formula they had, which turned out to be quite close to it's proper market value.

OT - but this anecdotal nicely documents exactly where the stressors (hence, stresses) are in the market at present. "What's this asset worth?" "It's worth what we or our competitors will lend anything with a pulse to secure it". Combine brat culture (another poster's turn of phrase, not mine, but apt none-the-less) with an entirely sales focussed approach to risk management and catastrophic reversion to mean becomes a bankable certainty - even accepting arguments regarding liquidity, time, and irrationality.

[It is different this time]

This article refers to lenders Standard variable rates. Nobody uses these.

Surely some do, for one or another reason, otherwise SVR wouldn't exist! and it is currently @ 7.2% & no doubt it will go up in the future.

http://www.britannia.co.uk/mortgage/svr/index.html

If you've got the money, then with the standard variable rate mortgage you can repay your mortgage early, with no early repayment charge.Your repayments will increase and decrease according to Britannia's standard variable rate. The standard variable rate mortgage is available if you're a first-time buyer, moving to a new home or looking to move your mortgage to Britannia.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Standard Variable Rate

Currently

7.20% variable

The overall cost for comparison is

7.6% APR

Fees (non refundable on application)

Arrangement fee: none

Admin fee: £100

First Standard Valuation

Payable by customer

Early Repayment Charges

none

Other Information

Higher Lending Charge:

Free up to 90% LTV

[the end is a bit nigher]

Yea because it's not as if people who know what they are talking about have said that rates are near their peak as well. Get over yourself ya *****.

so you must be talking about people like Fiona at the Nationwide who said rates had peaked at 5% - she clearly knows what she is talking about, doesn't she??? a real economist, unlike us armchair ones?