Friday, December 7, 2007

0.25% Rate cut is not much help when you drowning

A rate cut is no comfort if viewed from the clifftop

"Retailers who have seen their sales tumble ..... there’s a simple reason for that: the number of homeowners emerging, shocked, from generous fixed-rate mortgages is too great, as the Council of Mortgage Lenders confirms. In September 2005, nearly three quarters of new mortgages were completed at a fixed rate – the highest proportion for years – and the rate averaged 4.8 per cent. Advance to September 2007, when the most popular two-year fixed-rates expired, and the average fix had soared to 6.4 per cent."

Posted by happyrenterz @ 11:43 AM (1329 views)
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12 thoughts on “0.25% Rate cut is not much help when you drowning

  • so on a £100,000 mortgage that’s gone from £4,800 p.a. to £6,400.ie £400 per month to £533. So that’s circa £172 per month gross,an increase of 33%…………..and that’s if they can get a fixed.Be interesting to know the proportion of new mortgages that are fixed and how many people are being forced onto the variable rate.And wage growth is errrrr stagnant at best.

    Of course,this excludes any repayment of the principal.

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  • Pilot to control tower: “… both engines on fire… the ‘silver lining’ is that we have also run out of fuels, so no more combustible on board… controls (i.e. the base rate) are frozen… the plane does not respond… but the good news is that we are heading down, so we will be there shortly… make all preparations for a soft landing”

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  • Aren’t the admin fees on fixed rates getting increasingly expensive too?

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  • The admin fees on fixed rates have edged up for the last 18 months. If the fixed term is 2 years, then the lenders can fleece those remortgaging every 2 years – it’s called repeat business.

    Unfortunately, those who have lied to get the original loan face extra scrutiny when remortgaging. Those who have self certified will find it hard to find another lender, as many of the self-cert lenders are no longer viable operations.

    Frosty conditions indeed!

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  • Excellent point gent’s ragarding fee’s

    Here are 2 current examples from leading lenders (I won’t name them but they have been quick to follow the BOE cut) 2 year fix (re-mortgage) @ 5.68% – booking fee £1999 alternatively 2 year fix (re-mortgage) @ 5.69% arrangement fee £999 plus valuation & conveyancing fee (this depends on property valuation and size of loan)

    So despite the 0.25% cut anyone who thinks borrowing just got cheaper and easier is in for a big shock when they come to re-mortgage because the additional fees being introduced by a wide range of lenders will more than make up for any rate cuts (including the extra 0.5% everyone seems to have factored in for 2008)

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  • Forgot to mention on the above posting that if the borrower adds the fee to the mortgage it gets charged at SVR (Std Variable Rate) and not the fixed rate – which again bumps up the cost.

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  • It’s a game of lender chicken alright.

    The last lender to refuse applicants with dodgey credit histories, or to offer too generous rates, or to have too loose credit criteria will be the ones most burned if it all goes wrong. Of course they will all be OK if they all continue lending as if money grew on trees (which to be fair, in this fiat money system, it does).

    First out before a crash will benefit most.

    They must be sweating.

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  • Inbreda, they are sweating, because in the past a lot of lenders simply sold on their “mortgage book” and effectively started the lending process all over again without the fear of being over exposed to defaults or falling house prices – not so easy to offload the “mortgage book” now due to recent events such as The Rock crisis, credit crunch etc… institutions are running scared for fear of buying something totally toxic.

    It is a vastly different mortgage market now compared with summer 2007 and prior.

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  • 6.4%? There’s plenty of rates well below that even if there’s a bit of a fee with them, it’s not as dramatic as it’s being made out to be.

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  • On the radio last night they were interviewing people in Oxford street about the interest rate cut – ‘How much have you spent today?’,reply, ‘£300 just this morning, not finished yet’,interviewer,’What will the interest rate cut mean to you?’, reply,’Does it mean i’ll be able to spend more?’

    I fear we may have a bit to go before reality bites.

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  • The article states that the “average” fix has moved to 6.4% so there are deals cheaper than this as shown in the above posting but to get the best available rate, borrowers re-mortgaging will need (a) clean credit history (b) High loan to value ratio (c) confirmation that any repayment vehicle is on target to repay the whole of the loan (as per new FSA guidelines)

    The goalposts have moved, the lending availability reduced and the criteria tightened.

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  • A lot of people are living month-to-month, with no savings. For them it will be very difficult to find that £1000 or £2000 in spare cash with which to pay the fixed-rate fees. If the fee is rolled into the final mortgage then they may find the total saving isn’t that much anyway. There may also be hidden costs: exit fees on their existing mortgage, legal fees, valuation fees, etc. Often it’s just less hassle to stick with the SVR.

    Fixed-rate (or teaser rates as the americans call them) are loss-leaders for the banks, they rely on the inertia of people not bothering to switch after two years. If the bank is assessing an application from a particular individual and notices that they have been a “rate tart” in the past (it will show up on their credit report), then they may decide it’s not worth the bother – they much prefer lazy customers.

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