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Two Million Homeowners Face Punishing Mortgage Increases Of Up To 36%

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A couple of years ago we would be lucky to read 'bearish' news but now the national press is mentioning 'c' word.

what a 'U' turn! A good wake up call but too little too late.

Mortgages could soar by a third as fixed deals expire

Mortgages could soar by a third as fixed deals expire

By SEAN POULTER - More by this author »

Last updated at 23:31pm on 29th June 2007

More than two million homeowners face punishing increases of up to 36 per cent in mortgage costs when their cheap fixedrate deals come to an end.

Some 2.8million borrowers will face a knock-out blow to their finances over the next 18 months.

Many will be automatically transferred to a variable rate mortgage, which could add more than £200 to their monthly bill.

Alternatively, they may take out a new fixed rate, but this will be at a much higher level than they are currently paying and could come with fees of more than £500.

The Council of Mortgage Lenders and finance industry analysts have sounded the alarm over the impact of this home loan time-bomb.

It creates problems beyond the 2.8million owners involved and the economy as a whole could be damaged. The risk of increasing home repossessions could lead to property price falls and a collapse in consumer confidence and spending.

A similar scenario of rising interest rates and buyers unable to make repayments preceded the property crash of the early 1990s.

The plight of the 2.8million will not be helped by predictions that the base rate could rise to 5.75 per cent next week and 6 per cent by the end of this year.

The Council of Mortgage Lenders estimates that about 1.3million borrowers took out fixed-rate mortgages in 2005 and a further 1.5million in 2006. Most of these mortgages would have been fixed for two years and will lapse over the next 18 months.

These homeowners will face increases of between 1 per cent and 3.75 per cent on their mortgage rates, adding huge extra costs to repayments.

Someone paying 4.75 per cent on a fixed-rate deal might have to pay 8 per cent under a standard variable rate by the end of this year.

This would see their monthly bill on a loan of £125,000 rise from £681.53 to £926.17. That is an increase of almost £245 or 36 per cent a month. Someone opting for a new fixed-rate deal may find the interest figure rises from 4.75 per cent to 5.75 per cent.

This would add a more affordable £73 a month to their payments. However, it generally costs more than £500 to buy into such a deal.

The CML director general, Michael Coogan, said those on fixed rates which are due to run out need to start planning how they will cope with the impact on their finances.

"It makes sense for borrowers whose fixed rates will end soon to start planning ahead now and to recognise their monthly costs will be higher in the future," he said.

"Anyone who thinks they may face financial difficulties should talk to their lender at an early stage to see what steps can be taken to improve their situation."

The finance website Fool.co.uk suggests these fixed-rate borrowers could find an average black hole in their finances of £1,900.

This is the gap between what they have coming into the house and what they need to spend to cover the mortgage and other essential bills.

Head of personal finance at the website, David Kuo, said: 'The signs are not good for overstretched homeowners and by implication the housing market.

"With almost no contingency left in their budgets, another rate rise, even a small one, could see many homeowners struggling.

"Homeowners need to act swiftly. It is vital they identify where savings can be made now The average household may need to cut annual outgoings by as much as a tenth."

Mortgage approvals have risen after a recent slump, confirming fears that interest rates will rise even further. The Bank of England said 114,000 loans were agreed for home purchase during May, up from 109,000 in April.

It reverses a three-month falling trend and will add to pressure on policymakers to raise interest rates further in an attempt to cool activity

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A couple of years ago we would be lucky to read 'bearish' news but now the national press is mentioning 'c' word.

what a 'U' turn! A good wake up call but too little too late.

Mortgages could soar by a third as fixed deals expire

.......we seem to be treading a path, the US hit about 9 months ago......look at them now....!

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A couple of years ago we would be lucky to read 'bearish' news but now the national press is mentioning 'c' word.

what a 'U' turn! A good wake up call but too little too late.

Mortgages could soar by a third as fixed deals expire

Someone paying 4.75 per cent on a fixed-rate deal might have to pay 8 per cent under a standard variable rate by the end of this year.

This would see their monthly bill on a loan of £125,000 rise from £681.53 to £926.17. That is an increase of almost £245 or 36 per cent a month. Someone opting for a new fixed-rate deal may find the interest figure rises from 4.75 per cent to 5.75 per cent.

This would add a more affordable £73 a month to their payments. However, it generally costs more than £500 to buy into such a deal.

Across a year then someone on a £125k mortgage would pay an extra £876 plus the one off arrangement fee of £500. Im not being funny but i really cannot get worked up over this at all. One takeaway at £20 a week would be a grand saved. I think we are all safe a while yet.

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guy's at work say that they won't be affected (fixed) and don't care about rate rises - they can meet their monthly repayments and intend to buy up any reposessed properties that come onto the market

pointed out to them that they wouldn't have the means to buy any more property if the credit dries up - plus they'll probably be sitting on negative equity

they came back will - 'ahh, yes but in the real world you will be able to get credit from somewhere'

just gave up at that point...

Edited by dnd

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pointed out to them that they wouldn't have the means to buy any more property if the credit dries up -

Agreed. A point some bargain hunters hoping for a crash may choose to reflect on.

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The Council of Mortgage Lenders estimates that about 1.3million borrowers took out fixed-rate mortgages in 2005 and a further 1.5million in 2006. Most of these mortgages would have been fixed for two years and will lapse over the next 18 months.

The CML director general, Michael Coogan, said those on fixed rates which are due to run out need to start planning how they will cope with the impact on their finances.

"It makes sense for borrowers whose fixed rates will end soon to start planning ahead now and to recognise their monthly costs will be higher in the future," he said.

No they needed to plan when they took out the fixed rate!

The savings ratio is at a 50yr low and that's before these mortgages reset.

http://www.channel4.com/news/articles/busi...nce+1960/582477

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Mortgage resets was the trigger in the US.

In the end its always affordability and inability to obtain unlimited lines of credit that kills every house price boom.

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Across a year then someone on a £125k mortgage would pay an extra £876 plus the one off arrangement fee of £500. Im not being funny but i really cannot get worked up over this at all. One takeaway at £20 a week would be a grand saved. I think we are all safe a while yet.

Two problems with your analysis - many loans are for considerably more than £125K and these overstretched borrowers gave up a £20 takeaway a week long ago to make ends meet

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Agreed. A point some bargain hunters hoping for a crash may choose to reflect on.

Credit drying up will mean no more 6X salary loans. If you think banks are literally going to stop lending any money at all you're even more in denial than I thought. Have you recently mortgaged yourself up to the hilt by any chance?

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Across a year then someone on a £125k mortgage would pay an extra £876 plus the one off arrangement fee of £500. Im not being funny but i really cannot get worked up over this at all. One takeaway at £20 a week would be a grand saved. I think we are all safe a while yet.

I agree, most people will manage but the more worrying aspect of this is that they won't be spending the £876 in the shops, as savings are at an all time low - a lot of this money would be keeping the retail economy afloat. I think we'll see a downturn in retail in line with these mortgage resets which may lead to unemployment rising - that's a real problem. as it starts a vicious circle.

Either way, I'm not convinced 'ole Goon Broon won't 'instruct' the MPC to nudge down rates to help us all smile after floods and terrorist bombs have put a dampener on his entry. ;)

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I don't know I just can see any limit to the risks subprime lenders are willing to take.......

True. We live in a risk averse market. So far there has been little to no consequences to the risk taking. After all, a few thousand bankruptcies at the personal level and the odd ten thousand or so repossessions in the US with 3 hedge funds on the brink is not perceived as the "whole" market about to go under. The gamblers will stay in the game because they have to. The smarter money departs quietly out the back door.

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Someone paying 4.75 per cent on a fixed-rate deal might have to pay 8 per cent under a standard variable rate by the end of this year.

This would see their monthly bill on a loan of £125,000 rise from £681.53 to £926.17. That is an increase of almost £245 or 36 per cent a month. Someone opting for a new fixed-rate deal may find the interest figure rises from 4.75 per cent to 5.75 per cent.

This would add a more affordable £73 a month to their payments. However, it generally costs more than £500 to buy into such a deal.

Across a year then someone on a £125k mortgage would pay an extra £876 plus the one off arrangement fee of £500. Im not being funny but i really cannot get worked up over this at all. One takeaway at £20 a week would be a grand saved. I think we are all safe a while yet.

Where can you get that deal? The best I can see from a mortgage search (2 year fixed) is 5.99% with a £299 fee or 5.64% with a £999 fee both of which will disappear by monday.

At best that is an additional £3400 over two years or £1700 a year not the £876 you are claiming.

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I predicted a crash a year or two ago. I admit that I got that completely wrong.

I predicted problems for some of those with cheap 2-3 year mortgages a couple of years ago. Bingo ! Maybe my first prediction will be proved correct (but a bit later than expected), helped by this scenario.

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Many will be automatically transferred to a variable rate mortgage, which could add more than £200 to their monthly bill.

I wonder what proportion of mortgage holders allow their fixed rate to lapse and end up on the SVR? 30%? 50%? I suspect there's a great deal of financial apathy about! <_<

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I agree, most people will manage but the more worrying aspect of this is that they won't be spending the £876 in the shops, as savings are at an all time low - a lot of this money would be keeping the retail economy afloat. I think we'll see a downturn in retail in line with these mortgage resets which may lead to unemployment rising - that's a real problem. as it starts a vicious circle.

Either way, I'm not convinced 'ole Goon Broon won't 'instruct' the MPC to nudge down rates to help us all smile after floods and terrorist bombs have put a dampener on his entry. ;)

Thats exactly what I was going to say. It's like a double whammy!! More money going back to the banks means less money getting spent in 'consumer land'. Oh dear.

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Where can you get that deal? The best I can see from a mortgage search (2 year fixed) is 5.99% with a £299 fee or 5.64% with a £999 fee both of which will disappear by monday.

At best that is an additional £3400 over two years or £1700 a year not the £876 you are claiming.

My 'bell weather' mortgage still stands, even after the 1 or 2 recent BoE IR rises!!! :o 5.99% fixed rate for 25 years!!! Although I noticed that the arrangement fee has increased by £300.

http://www.thecheshire.co.uk/online-mortga...ortgage-FDT.asp

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Many will be automatically transferred to a variable rate mortgage, which could add more than £200 to their monthly bill.

I wonder what proportion of mortgage holders allow their fixed rate to lapse and end up on the SVR? 30%? 50%? I suspect there's a great deal of financial apathy about! <_<

That is so true. There will be a fair few people who just don't have a clue, just look how many people can't manage credit card debts.

Do the banks have to inform of the change or will it just switch over? (as it should because they signed the contract for it).

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Say you want to re-mortgage into another good fixed rate, albeit perhaps significantly higher than before, and your overall debt has increased due to struggling with your large mortgage. Could a significant proportion of people be denied the better fixed rate deals as they're now poor risks?

Anyone know the dynamic?

Edited by CrashedOutAndBurned

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One takeaway at £20 a week would be a grand saved. I think we are all safe a while yet.

Unless we happen to work in a takeaway--or any other highly discretionary part of the economy. After that, it depends on the knock-on effects of falling demand.

Edited by huw

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It just aint happening. Why god hwy?

It'll take time to filter through. There is a time lag between people getting into trouble and the house actually going into a forced sale.

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