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Realistbear

" Homebuyers At Mercy Of Twist Of The Screw..." Daily Mail

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http://www.thisismoney.co.uk/news/columnis..._author_id=1865

RICHARD DYSON, FINANCIAL MAIL DEPUTY PF EDITOR
Richard Dyson, Financial Mail Deputy PF Editor
Homebuyers at mercy of twist of the screw...
24 June 2007
Mortgages offering a mouth-wateringly low rate followed by a compulsory period of standard-rate borrowing can be catastrophic for householders.
WEBSITE OF THE YEAR
tick This is Money has been named Financial Website of the Year in recognition of its campaigning coverage
of Great Crash 2.
>> Read*
That is why Financial Mail never includes such deals in our best-buy tables.
Some unfortunate borrowers with the Portman Building Society - now being subsumed into rival Nationwide - are learning the hard way.
They signed up to a two-year mortgage deal in June 2005 when the rate was fixed at an amazing 2.29%. Hopefully, they have been putting aside money saved from this bargain rate - because they might soon need it.
Next month, the rate on that Portman deal will revert to the Bank of England's base rate, plus 1.99%, and borrowers are locked in until July 2011.

That which triggered Great Crash 2 in the US will undoubtedly trigger the serious negative data this side of t'pond. The dreaded and most feared device of all over-geared OOs and BTLers: MORTGAGE RESETS.

_____________

* Italics mine. ;)

Edited by Realistbear

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Now that's what I call a reset - come the end of the of the year these people will be on 8% from 2.29% :o

It could be more of a shock for some people than we anticipate.

I realise this strains credibility a bit but I really did overhear someone talking loudly in the pub a few weeks ago.

"So what if the mortgage goes up a few percent when we get another one, its only a grand a month, I can afford the price of a few pints extra on top of that".

:o Oh dear...slight misunderstanding there I think.

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It could be more of a shock for some people than we anticipate.

I realise this strains credibility a bit but I really did overhear someone talking loudly in the pub a few weeks ago.

"So what if the mortgage goes up a few percent when we get another one, its only a grand a month, I can afford the price of a few pints extra on top of that".

:o Oh dear...slight misunderstanding there I think.

Some figures :

2.29 % on 200k over 25 years = 883.01

8%

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On an interest-only loan of £150,000, that means monthly payments will have jumped from £286 to £999. That is an extra £713 to find each month.

But there is no cheap way out, either. To get out of the deal they would face a penalty of £10,500.

Evil.

Edited by bugged bunny

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[

They signed up to a two-year mortgage deal in June 2005 when the rate was fixed at an amazing 2.29%. Hopefully, they have been putting aside money saved from this bargain rate - because they might soon need it.

Next month, the rate on that Portman deal will revert to the Bank of England's base rate, plus 1.99%, and borrowers are locked in until July 2011. [/indent]

I detest these low start mortgages - had hoped it was only a US phenomenon

£140k over 25 years at 2.29% = monthly payment 613.36

£140k over 25 years at 7.49% = monthly payment 1033.68

ouch :blink:

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It reminds me of those DVD clubs were you could buy a 3 DVDs at 15pence each...

Then for 15Months you had to pay Double the normal price for a sheety selection of DVDs

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It reminds me of those DVD clubs were you could buy a 3 DVDs at 15pence each...

Then for 15Months you had to pay Double the normal price for a sheety selection of DVDs

I'm surprised folks still rent DVD's haven't they heard of Bit Torrent.

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http://www.thisismoney.co.uk/news/columnis..._author_id=1865
RICHARD DYSON, FINANCIAL MAIL DEPUTY PF EDITOR
Richard Dyson, Financial Mail Deputy PF Editor
Homebuyers at mercy of twist of the screw...
24 June 2007
Mortgages offering a mouth-wateringly low rate followed by a compulsory period of standard-rate borrowing can be catastrophic for householders.
WEBSITE OF THE YEAR
tick This is Money has been named Financial Website of the Year in recognition of its campaigning coverage
of Great Crash 2.
>> Read*
That is why Financial Mail never includes such deals in our best-buy tables.
Some unfortunate borrowers with the Portman Building Society - now being subsumed into rival Nationwide - are learning the hard way.
They signed up to a two-year mortgage deal in June 2005 when the rate was fixed at an amazing 2.29%. Hopefully, they have been putting aside money saved from this bargain rate - because they might soon need it.
Next month, the rate on that Portman deal will revert to the Bank of England's base rate, plus 1.99%, and borrowers are locked in until July 2011.

That which triggered Great Crash 2 in the US will undoubtedly trigger the serious negative data this side of t'pond. The dreaded and most feared device of all over-geared OOs and BTLers: MORTGAGE RESETS.

_____________

* Italics mine. ;)

Surely these people knew what they had signed up for,Maybe some thought they could jump ship just before two two year period was up and with HPI pocket a packet even after paying the penalty.

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On an interest-only loan of £150,000, that means monthly payments will have jumped from £286 to £999. That is an extra £713 to find each month.

If that's what people signed for, then fair enough!

Looks like we're running 12-18 months behind the US.

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It reminds me of those DVD clubs were you could buy a 3 DVDs at 15pence each...

Then for 15Months you had to pay Double the normal price for a sheety selection of DVDs

I don't see why...

They will have benefitted from two years of HPI and presumably have the option to remortgage again by adding the default costs to the new mortgage.

I doubt many will simply cough up the £999 a month when they could probably knock off £200pm by remortgaging.

Some of them will be quite happy if they bought in areas of high HPI.

If they saved the IR savings each month for two years (or spent it on improving the property) they will be in a much better position than they would have been if they had rented for two years and tried to buy the same house at today's prices.

Edited by Without_a_Paddle

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Observer: Low meant a dream home: high is a nightmare
Sunday June 6, 2004

http://observer.guardian.co.uk/cash/story/0,6903,1232162,00.html' rel="external nofollow">
Several lenders still offer deeply-discounted loans, including the Portman Building Society and Northern Rock bank. Northern Rock's offering charges 1.98 per cent for the first two years, but rises to its standard variable rate (currently 6.29 per cent, but which could be higher in two years' time).
The loan has redemption penalties which continue for five years beyond the low rate period, costing from 8 to 2 per cent of the outstanding mortgage. Someone repaying a £100,000 loan in the second year would have to pay £8,000 in penalties.
Portman Building Society has a deal starting at 2.29 per cent rising later to the equivalent of bank base rate plus 1.99 per cent. At current rates the long-term cost of borrowing on this deal would be 6.24 per cent.
But a Portman spokeswoman says this is made 'crystal clear' to borrowers at the outset. When selling the loans, the society looks at applicants' ability to repay at the higher as well as lower rate. There is no evidence, adds the spokeswoman, that any are experiencing difficulties with these mortgage deals.
Diane Watson, a PayPlan counsellor, says that 20 per cent of her clients face mortgage payment problems. 'Whereas people were paying £200 or £300 a month, we're seeing people facing payments of £700, £800, even £1,100 a month.'
She says that borrowers become trapped in a vicious cycle: because they have missed payments on their mortgage, personal loans or credit cards - and possibly incurred county court judgments - their credit rating plummets. Then, when they try to remortgage to consolidate their debts, they are charged a premium rate by their new lender because they are deemed high risk. This often means they cannot afford their mortgage payments and need to continue using their credit cards, building up further debt.

Looks like this issue was reported on back in 2004! Without a Paddle is right - borrowers could remortgage and pay the penalty, adding that cost onto their new mortgage (provided their credit rating is still kosher).

The customers who will be in trouble are those who weren't disciplined with their finances during the discount period. Doubtless a small minority(?) :unsure:

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I don't see why...

I doubt many will simply cough up the £999 a month when they could probably knock off £200pm by remortgaging.

It says they are locked in until 2011 unless they want to pay a penalty of £10,500. It's hard to see any way in which this is a good deal unless they manage to sell the house within the next 6 months - even then they're probably only as well off as an ordinary fixed rate deal.

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It says they are locked in until 2011 unless they want to pay a penalty of £10,500. It's hard to see any way in which this is a good deal unless they manage to sell the house within the next 6 months - even then they're probably only as well off as an ordinary fixed rate deal.

.....is it not the case even if they sell ...they pay the penalty within the discounted period...? Off course

the good news could be that the mortgage is portable....but then so is the penalty!

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Guest happy?

One of the features of the mortgage market over the last five years or so has been the growth in low fixed-rate deals. These types of deals must be causing real hedaches for the MPC. Time was when they raised rates and the same day the banks would announce their new rates - immediately impacting on consumer spending.

Clearly, the MPC is a blunt instrument for controlling HPI.

The reverse which has not been considered - just as this instrument applies the brakes and there's a delayed re-action because people are shielded from immediate rises, what happens if they need to put their foot on the accelerator and nothing happens because people are locked in at 6-7% rates?

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I don't know what they're worrying about.

Is it not standard practice in the UK to sue for mis-selling in such circumstances, i.e. where the customer doesn't like the outcome of a particular financial transaction regardless of what they were told or signed?

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One of the features of the mortgage market over the last five years or so has been the growth in low fixed-rate deals. These types of deals must be causing real hedaches for the MPC. Time was when they raised rates and the same day the banks would announce their new rates - immediately impacting on consumer spending.

Clearly, the MPC is a blunt instrument for controlling HPI.

The reverse which has not been considered - just as this instrument applies the brakes and there's a delayed re-action because people are shielded from immediate rises, what happens if they need to put their foot on the accelerator and nothing happens because people are locked in at 6-7% rates?

...that is the acknowledged gamble with fixed rate mortgages with a penalty due to come out.....of course you could be on a base rate tracker and you would follow the rates down, instantly .....the problem, currently, is they are following BR up.

You pay your money and make your choice :unsure:

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Pretend I'm Orbital:

<Orbital>

Yeah but if you don't buy Ipods or TV's or go to the pub for the occassional pint, you could easily afford to pay the increase in %. People should try harder like I did when I bought my property.

</Orbital>

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A friend of mine was telling me he could get a 2% mortgage 2 years ago and would help me out.

Thank god I didn't. lol.

Banking IR changes do have an effect but as mentioned are lagged - no doubt this will create a bottle neck and make this crash more powerful than I've seen before in my short years.

The landscape is getting very interesting and 2007 seemingly is when much changed? We'll certainly see this time next year.

Great info, Great post...

:lol:

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Let`s not forget that it`s all about affordability !

2.29% is affordable, so go for it ! It`s deals like this that help to fuel HPI. Portman may claim that they look at the borrower`s ability to pay at the higher rate, but how do they know what the rate will be in 2 years time ? Better to start someone on a more realistic rate, then there`ll be less chance of a nasty suprise in the future.

After paying a mortgage at 2.29% for a while, most people will adjust their spending/lifestyle to this low rate. It will come as a big shock to many with this deal when the 2 years are up. If they haven`t taken on extra debt, or had a cut in income then they will be OK, otherwise it`s bad news.

There is no such thing as a free lunch.

Edited by Prof

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It reminds me of those DVD clubs were you could buy a 3 DVDs at 15pence each...

Then for 15Months you had to pay Double the normal price for a sheety selection of DVDs

That one goes back a long way, remember my mum joined back in the 60's and I thought I could get hold of a cheap Beatles LP, anyway when this thing arrived it was 'The Tijuana Brass band of Mexico' 'Beatles Melodies'. Well at the age of 6 I was entitled to be p*ssed off cause I realy didnt know how to read fine print, however some of these mortgage takers should have been a bit smarter, or is it just me that positivly knows that interest rates will always revert to the mean of around 8%+?

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