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

[sikejsudjek]

I doubt half the people on fixed rates have any clue what they will pay when they come off them. Even if they did budget back when they took out the discount, did they realise how much extra fuel, heating, council tax and food inflation would be ? I doubt it.

As debts increase we become poorer as a society. We have to work harder, longer hours under more stress. Its not so much an economic miracle but creeping ownership by the banks to debt slavery. Once money creation is based on lending, this is always going to be the outcome.

[Xil]

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.

I bet every single person who took a mortgage at 2.29% thought "I had better save as hard as possible for when the rate reverts to base rate plus two percent"

Or did they buy "something nice" instead and now have less savings than when they bought their property......

[Warwick-Watcher]

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."

Am I the only one who thinks tough sh*t? If they can't afford it now then they couldn't really afford the place 2 years ago so really they've had a cheap rent for a couple of years and the party is now ending.

No doubt they will sue as no/one is really responsible for anything nowadays. What's the betting that the majority of these mortgages were Interest Only with low deposits paid? Maybe the banks deserve to lose court cases, then be encouraged to tighten up credit terms to restrict lending to more responsible individuals.

Edited June 24, 2007 by Warwick-Watcher

[Prof]

I bet every single person who took a mortgage at 2.29% thought "I had better save as hard as possible for when the rate reverts to base rate plus two percent"

Or did they buy "something nice" instead and now have less savings than when they bought their property......

If they took the first option, why didn`t they just take on a "normal" 2 or 3 year deal at around 4.5%, without the nasty tie-in ? I`ll answer my own question - because they wanted to buy "something nice" with the money "saved" by the low rate.

This deal is crazy. Who would take on a deal like that with a base rate + 2% tie-in ? It`s obvious that a lender who offers a really low rate is going to get their money back somehow or other. I bet that the majority of people that took this kind of deal were those that would struggle to afford repayments at "normal" rates, so how are they going to manage when it goes to 7.5%+ ?

I spoke to a few people about these ridiculously low rates when they were offered around 2-3 years ago. I did predict that they could be bad news for those who took them on. Obviously it probably won`t be disasterous for all that are on this deal, but I expect some will end up in financial trouble.

[Selling up]

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?

Excellent point. I hadn't thought about this.

No way to stimulate spending - hello deflationary depression.

[PotNoodle]

This deal is crazy.

In late 2004 and early 2005, property prices slowed, as they had to.

Then the MPC dropped the rate, once, in August, triggering another

surge of buying.

Everyone who has bought from that point on must face the fact

that they bought something that is not worth what they paid for it.

The price is inflated.

But for many, the situation is worse than simply possessing something

that was overpriced.

They actually locked themselves into expensive financial deals

in order to pay that over-inflated price.

Now.... there is no escape.

Caveat emptor.

[Xil]

I bet that the majority of people that took this kind of deal were those that would struggle to afford repayments at "normal" rates, so how are they going to manage when it goes to 7.5%+ ?

I spoke to a few people about these ridiculously low rates when they were offered around 2-3 years ago. I did predict that they could be bad news for those who took them on. Obviously it probably won`t be disasterous for all that are on this deal, but I expect some will end up in financial trouble.

Spot on. The nature of the product is such that it would have attracted those that couldn't afford a standard variable mortgage.

At the time there would have been better value products around. Mortgages such as this would appeal to 'short-termers' - those least likely to be able to cope with a huge reset.

[Without_a_Paddle]

In late 2004 and early 2005, property prices slowed, as they had to.

Then the MPC dropped the rate, once, in August, triggering another

surge of buying.

Everyone who has bought from that point on must face the fact

that they bought something that is not worth what they paid for it.

The price is inflated.

But for many, the situation is worse than simply possessing something

that was overpriced.

They actually locked themselves into expensive financial deals

in order to pay that over-inflated price.

Now.... there is no escape.

Caveat emptor.

Well I suggested Jan 2006 was a good time to buy. You could get a 10yr fix at 4.7% back then.

Since then rates have shot up and so have prices.

[b0rk]

If they took the first option, why didn`t they just take on a "normal" 2 or 3 year deal at around 4.5%, without the nasty tie-in ? I`ll answer my own question - because they wanted to buy "something nice" with the money "saved" by the low rate.

This deal is crazy. Who would take on a deal like that with a base rate + 2% tie-in ? It`s obvious that a lender who offers a really low rate is going to get their money back somehow or other. I bet that the majority of people that took this kind of deal were those that would struggle to afford repayments at "normal" rates, so how are they going to manage when it goes to 7.5%+ ?

I'd agree that these deals are designed to attract those least able to afford SVR let alone the reversion rate, relatively low reversion rates quoted 2 years ago probably didn't help in highlighting just how expensive extended tie-in deals can be in a not NICE environment.

Interestingly these very low rate with tie in deals are still around portman is now offering 3.59% then BOE+1.99% for four years. The "best buy" on moneysupermarkets with tie in table is a deal offering 2.25% for 2 years + SVR for 4 years.

[Prof]

The lenders know what they are doing, if you try to "beat the system", chances are you`ll end up being worse off.

Ultimately, the best mortgage to take on is one that you can afford, and preferably pay off early. Unfortunately, it seems to me that people are mainly bothered about their property value going up, the mortgage being a slight inconvenience. As interest rates have increased, people seem to focus more on their mortgage deal. When house prices start to fall, that monthly mortgage payment will be less appealing. Rather than take on more debt when rates have been low, I have been concentrating on paying off my mortgage early. During the housing boom I have felt (or made to feel) that I`m missing out, or financially naive. 6%+ base rates don`t worry me, I wonder why ?

Edited June 24, 2007 by Prof