Saturday, December 8, 2007

This will take the shine off the 0.25% cut

A new mortgage? That'll be £10,000: Lenders raise fees to 'astronomical' levels

Finance giants are taking advantage of home buyers by introducing 'astronomical' mortgage application fees that can top £10,000. Banks and building societies are cashing in through charges that can add crippling extra costs to buying a home or remortgaging. The swingeing fees mean that this week's decision by the Bank of England to cut the base rate by a quarter point may offer little benefit.

Posted by jack c @ 09:52 AM (1125 views)
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10 thoughts on “This will take the shine off the 0.25% cut

  • This is perfect, the bank of England didn’t want to boost house prices, nor do they want to make them drop suddenly. They want houses to be less interesting for new purchases and re-mortgaging and make trade and business cheaper. With these new mortgage fees we may well have the best possible economic situation, gently falling house prices, sustained employment, reduced domestic borrowing (so inflation might not shoot up especially with the negative feeling of the cost of buying your “castle” – I don’t count shortage of supply in oil and grain as real inflation).

    This could well be perfect for savers and the prudent.

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  • Great. The BoE base rate doesn’t make any difference to people in the real world, just like the CPI doesn’t match anyone’s experience of inflation in the real world. Earth to Mervyn….

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  • This reminds me a Charles Hugh Smith blog about the American market last year:

    http://www.oftwominds.com/blogoct06/39-steps-down.html

    “as I never tire of reminding readers, the Fed does not set long-bond or mortgage rates–the market does. And as risk rears its ugly head in the mortgage market, buyers of housing mortgages will begin demanding a risk premium–otherwise known as higher rates.”

    This is exactly what we are seeing now. By the time the bubble has properly burst, house prices should be much cheaper but finding anyone who will lend you a mortgage will be much harder.

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  • planning4acrash says:

    These fees replace retail deposits (money in bank accounts) for lenders who do not have savers to back up lending and rely on money markets which won’t lend without that back up.

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  • eyeoftheweasel says:

    Actually Cyril, the cut in BofE base rate probably will make a difference to savers.

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  • Can anyone tell me why, in this supposed global free market, you cannot get a better deal from a foreign based bank? After all you can pick and choose manufactured goods and save a fortune especially on line, why should banking be any different?

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  • planning4acrash says:

    This is not a flash in the pan, it is a trend. Fees have been rising slowly over the year (in retrospect a good litmus test for credit crunch and good sign that the crash is nigh). What it shows is, that everything can be bought at a price, set by the market, and, right now, regardless of the mortgage repayment costs, 5x salary is being priced out of the market, i.e. the risk premium is being inflated. Remember that this 10k must be paid each two years to re-fix the mortgage. Like, 10k may be good for a 25yr fix, but obviously stupid for a 2-5yr fix.

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  • Rome is burning, the BoE/Labour are fiddling.

    As someone on here said yesterday, you can’t expect a market which has been allowed to run rampant for at least five years to suddenly be reigned in (or saved) with some quick decisions within a few weeks. The government have lost all control of the housing market and have lost any hope of managing a soft landing, to do that they would have needed to take steps at least 2 or 3 years ago (such as not dropping interest rates 2 years ago).

    We’re holed below the waterline now and the only question left is how quickly will we sink?

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  • Most people will add the fees to the mortgage and in doing so this is normally charged at the lenders SVR (Standard variable Rate) not the fixed rate. A short term fix of say 2 or 3 years to me looks unattractive to any borrower because of the attaching fee’s – a better bet is to look at a longer fix e.g. 5 years plus however the early exist penalties should someone sell or be forced to sell are hefty. The largest residential lender in the UK market currently has ERC’s (early redemption charges) on it’s five year fixed rates of 5/4/3/2/1% e.g. £100K 5 year fixed rate mortgage and if the borrower redeems in year 1 the ERC is £5K!

    Someone mentioned on here yesterday that things were not as bad as was being reported in the press – when you start to scratch under the surface people will soon find out they are a whole lot worse!

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  • “The Abbey has the highest fee of £9,999 on a fixed-rate deal of 5.59 per cent for loans of between £500,000 and £750,000.”

    1/2 million and 3/4 million properties.

    My heart bleeds!

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