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" Fixed-rate Borrowers 'in For A Big Shock' "

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http://www.thisismoney.co.uk/mortgages/mor...p;in_page_id=58

Fixed-rate borrowers 'in for a big shock'

Sean "Shawn" Poulter, Daily Mail
3 October 2007
Thousands of home-buyers on fixed-rate mortgages face a crippling 'payment shock' as a result of the global credit crunch, it was claimed last night.
Some could find their monthly repayments
surge by up to 60%
, bringing the threat of debt and repossession. More than two million homeowners are expected to come off relatively cheap fixed-rate deals in the next 18 months.

Now that the VIs are beginning to admit to falls all accross the UK the news that mortgages are going to be soaring may well cause panic and a rush to sell. 2,000,000 already overstretched sheeple facing 60% hikes is the stuff hyper-crashes are made of.

Edited by Realistbear

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http://www.thisismoney.co.uk/mortgages/mor...p;in_page_id=58

Now that the VIs are beginning to admit to falls all accross the UK the news that mortgages are going to be soaring may well cause panic and a rush to sell. 2,000,000 already overstretched sheeple facing 60% hikes is the stuff hyper-crashes are made of.

It is indeed a VI saying this:

"The alarm has been sounded by the online home loans broker Moneygate and the respected credit ratings agency Standard & Poor's. "

Of course S&P are still "respected" in the marketplace.

It's amazing that a mortgage broker would say this. I wonder why?

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There is a lot of discussion about people coming to the end of their preferential interest rate for their mortgage and how much of a shock the transfer over to the standard variable rate will be. Ignoring the fact that interest rates may again be on the way down, surely it is not in any lenders interests to be so punative on current borrowers (whatever their credit history)? If they can currently afford the rate they are paying, sure they expect the rate to go up at the end of the period, but I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

Edited by pimperne1

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I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

Interest rate rises and the wholesale money markets drying up makes lenders put their rates up. It's not in their interest to reduce margins and they own the asset.

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Interest rate rises and the wholesale money markets drying up makes lenders put their rates up. It's not in their interest to reduce margins and they own the asset.

Yes but this is money they have already lent out.

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Yes but this is money they have already lent out.

Savings rates go up – if you have to pay depositors more you need more back from your borrowers. Money gets more expensive – debt gets more expensive to service.

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If they can currently afford the rate they are paying, sure they expect the rate to go up at the end of the period, but I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

They'll go onto whatever current rates are available to all customers - banks won't give special deals to people who are lending with them. In fact many banks give better rates to new customers, rather than existing ones. Anyone with any sense will go onto another fixed rate, or a tracker - but the bank may not remind you that your rate is coming to an end as they'd be quite happy for you to stay on the standard variable rate without noticing.

Can someone give me an example of what sort of mortgage someone would have to see a rise of 60% in their payments, because I can't get my head round that. My rate rose from 3.89% to 5.85% last year, but my payments only rose by 12%. I say 'only' because my mortgage is small so this meant an increase of £40/month which wasn't too bad, particularly as I overpay anyway.

Edited by Scarecrow

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Savings rates go up – if you have to pay depositors more you need more back from your borrowers. Money gets more expensive – debt gets more expensive to service.

Yes I am happy with that, I guess that is how they arrive at their SVR. To charge them a prohibitively high rate seems both unfair and possibly self defeating - surely better having someone paying SVR than having them not being able to afford a higher rate.

Edited by pimperne1

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There is a lot of discussion about people coming to the end of their preferential interest rate for their mortgage and how much of a shock the transfer over to the standard variable rate will be. Ignoring the fact that interest rates may again be on the way down, surely it is not in any lenders interests to be so punative on current borrowers (whatever their credit history)? If they can currently afford the rate they are paying, sure they expect the rate to go up at the end of the period, but I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

It's not punitive, it's business. Punitive would be illegal. Of course its in the banks interest - same as the governments. 'Squeeze them till the pips squeak'.

Most people will be able to pay. They might not be able to buy anything (food etc) but they can pay their council tax and mortgage. And if they can't then they will have to sell.

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Yes I am happy with that, I guess that is how they arrive at their SVR. To charge them a prohibitively high rate seems both unfair and possibly self defeating - surely better having someone paying SVR than having them not being able to afford a higher rate.

You forget that the bank has the right to foreclose on the house if the borrower defaults. Even if prices are on the way down, there should be enough value in the house to pay off the debt, or most of it. This assumes the lender didn't do something astoundingly reckless like lending 100% or greater LTV :P

Therefore they have no reason to go easy on their debtors. They'll charge them as much as they can get away with and take their house if the borrower defaults.

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Can someone give me an example of what sort of mortgage someone would have to see a rise of 60% in their payments, because I can't get my head round that. My rate rose from 3.89% to 5.85% last year, but my payments only rose by 12%.

The interest rate rises by just over 50% in your case. If you were on an interest only mortgage your payments would have gone up by the same percentage.

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Yes I am happy with that, I guess that is how they arrive at their SVR. To charge them a prohibitively high rate seems both unfair and possibly self defeating - surely better having someone paying SVR than having them not being able to afford a higher rate.

That's life I'm afraid - they put their SVR according to BoE changes. That's why you should never take out a mortgage unless you can afford for interest rates to go up. Who decides what a 'prohibitively high rate' is - only those who have overstretched will be unable to cope.

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The interest rate rises by just over 50% in your case. If you were on an interest only mortgage your payments would have gone up by the same percentage.

Thanks for that - I get it now. Anyone who is overstretched on an interest only mortgage and can't cope with a bigger payment, shouldn't have taken on such a big mortgage in the first place. I find it difficult to be sympathetic really.

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http://www.thisismoney.co.uk/mortgages/mor...p;in_page_id=58

Fixed-rate borrowers 'in for a big shock'

Sean "Shawn" Poulter, Daily Mail
3 October 2007
Thousands of home-buyers on fixed-rate mortgages face a crippling 'payment shock' as a result of the global credit crunch, it was claimed last night.
Some could find their monthly repayments
surge by up to 60%
, bringing the threat of debt and repossession. More than two million homeowners are expected to come off relatively cheap fixed-rate deals in the next 18 months.

Now that the VIs are beginning to admit to falls all accross the UK the news that mortgages are going to be soaring may well cause panic and a rush to sell. 2,000,000 already overstretched sheeple facing 60% hikes is the stuff hyper-crashes are made of.

This is precisely what has caused the problems in the USA.

If we bake our mortgage cake with the exact same ingredients & technique that the Americans used, i wonder what our "Just Desserts" will turn out like?

;)

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Thanks for that - I get it now. Anyone who is overstretched on an interest only mortgage and can't cope with a bigger payment, shouldn't have taken on such a big mortgage in the first place. I find it difficult to be sympathetic really.

Yeah, apologies I clearly did not make my point very well. What I had hoped to get across was that they would all expect to go on to the SVR and to put them on a higher rate than SVR because of their credit history seemed unfair (and if they did their sums on SVR guesswork then it is easier to be sympathetic?).

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There is a lot of discussion about people coming to the end of their preferential interest rate for their mortgage and how much of a shock the transfer over to the standard variable rate will be. Ignoring the fact that interest rates may again be on the way down, surely it is not in any lenders interests to be so punative on current borrowers (whatever their credit history)? If they can currently afford the rate they are paying, sure they expect the rate to go up at the end of the period, but I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

A nice comment pimperne1

I agree with you in principle that it is in no ones interest. It would make no sense to have a default and an empty house, with a potentially decreasing value and no money coming in at all. It would seem logical to have some repayment of the loan, even if it was not in full. However, it seems that logic goes out of the window in the housing market. I see a lot of empty houses and homeless families and that is the real shocker. In some instances, not all, the family only wanted a place to live. It shouldn't be that much to ask should it ?

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So whats the betting that,if there is no General Election this year, that Gordon Brown concocts with some kind of bail out for distressed UK borrowers in league with the BOE and the big financial institutions?

Similar to the ones being touted by the Democrats in the U.S.?

Good vote catcher?

Watch this space!

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Yeah, apologies I clearly did not make my point very well. What I had hoped to get across was that they would all expect to go on to the SVR and to put them on a higher rate than SVR because of their credit history seemed unfair (and if they did their sums on SVR guesswork then it is easier to be sympathetic?).

depends upon what their deal was at the time, but if a mortgagee hasn't missed a payment then i can't see ny reason why they would be punished either - if they have missed a payment then they are fair game

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Yeah, apologies I clearly did not make my point very well. What I had hoped to get across was that they would all expect to go on to the SVR and to put them on a higher rate than SVR because of their credit history seemed unfair (and if they did their sums on SVR guesswork then it is easier to be sympathetic?).

No, it is totally my fault - I'm being incredibly dim this evening and didn't read the linked article properly. I get what you're saying.

My colleague has been refused a joint mortgage because of the credit rating of her partner, who currently has a mortgage. They can only get one which is on a higher rate than SVR which I agree is unfair. They are moving home though and I am unsure as to whether the bank would have acted the same if he was staying put, and simply coming to the end of his fixed rate.

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There is a lot of discussion about people coming to the end of their preferential interest rate for their mortgage and how much of a shock the transfer over to the standard variable rate will be. Ignoring the fact that interest rates may again be on the way down, surely it is not in any lenders interests to be so punative on current borrowers (whatever their credit history)? If they can currently afford the rate they are paying, sure they expect the rate to go up at the end of the period, but I am finding it hard to accept that the current lender will purposely give them a higher rate which may be unaffordable and which may cause a default - this is in no-ones interests.

Im guessing you dont remember when this happened in the 90's. Banks only started "going easy" on struggling mortgagees when their properties had slipped so far into negative equity that they almost werent worth repossessing. Then the "homeowners" became defacto tenants, paying reduced mortgage but piling up debt while the banks waited for the uptick in the market.

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Im guessing you dont remember when this happened in the 90's. Banks only started "going easy" on struggling mortgagees when their properties had slipped so far into negative equity that they almost werent worth repossessing. Then the "homeowners" became defacto tenants, paying reduced mortgage but piling up debt while the banks waited for the uptick in the market.

Again, I think my point is not well made. In the 90s the banks put people on to the SVR (there being, I think, no real sub-prime problem then). My point is that people should go on to the SVR (as I assume they did in the 90s) not on to an enhanced interest rate above the SVR after taking into account their already declared credit rating and salary multiples. You may prove to be correct but I still find it illogical that banks will put current borrowers onto a rate higher than the SVR because they are high risk.

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Anyone who is overstretched on an interest only mortgage and can't cope with a bigger payment, shouldn't have taken on such a big mortgage in the first place. I find it difficult to be sympathetic really.

Quite. They are part of the problem. The cure is clearly going to hurt.

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It is indeed a VI saying this:

"The alarm has been sounded by the online home loans broker Moneygate and the respected credit ratings agency Standard & Poor's. "

Of course S&P are still "respected" in the marketplace.

It's amazing that a mortgage broker would say this. I wonder why?

I think it's a simple case of a mass realisation

"I am an alcoholic"

and then when you've admitted it you can head on the road to redemption :(

I think we'll see a lot more of this. Previously respectable people who entered an industry with the best of intentions and realise that through thier own guile and persuasion have committted millions to living a life in enslavement.

Those that survived the post war trials were those that were the first to admit their crimes.. and with their careers in mind are now trying to distance themselves from the damage they have done through sheer greed.

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Again, I think my point is not well made. In the 90s the banks put people on to the SVR (there being, I think, no real sub-prime problem then). My point is that people should go on to the SVR (as I assume they did in the 90s) not on to an enhanced interest rate above the SVR after taking into account their already declared credit rating and salary multiples. You may prove to be correct but I still find it illogical that banks will put current borrowers onto a rate higher than the SVR because they are high risk.

Yes and no. The banks may think its in their interests to foreclose on them now and sell asap. Thats what I'd do.

If I thought there was a crash coming.

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Im guessing you dont remember when this happened in the 90's. Banks only started "going easy" on struggling mortgagees when their properties had slipped so far into negative equity that they almost werent worth repossessing. Then the "homeowners" became defacto tenants, paying reduced mortgage but piling up debt while the banks waited for the uptick in the market.

This is feasible where the bank holds the mortgage on its own books, but where the debt has been collateralised, the ultimate holder is unlikely to be so understanding (and the bank probably doesn't care, and wouldn't be able to do much even if it did, because collateralisation has multiplied the total lending so much).

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