Tuesday, Nov 24, 2009

Tracker resets to hit the subsidized

FT Alphaville: The upcoming UK tracker time-bomb

How can one explain the apparent contradiction of financially-damaged consumers, but benign insolvency and repossession rates? Much has to do with exceptionally low interest rates.One of the most direct mechanisms through which the BoE rate cuts have fed through to the average overindebted borrower is tracker mortgages. ..Most tracker deals have a reasonably short term on the tracker rate before moving to the bank’s often penal SVR (Standard Variable Rate).

Posted by mountain goat @ 04:46 PM (1332 views)
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1. mark wadsworth said...

"...the apparent contradiction of financially-damaged consumers, but benign insolvency and repossession rates? Much has to do with..."

the fact that the government has changed the repo rules so that it now takes about a year, instead of a few months, i.e. postponing things until after the next election.

Tuesday, November 24, 2009 05:22PM Report Comment

2. alan said...

Russia has dropped IRs to 9% (Surprise/Awe) today.

I wonder what would happen if the BoE suddenly upped the UK rates to 3% (a third of Russia's). I suspect a very large round of foreclosures from those on SVRs and Trackers....?

Tuesday, November 24, 2009 05:26PM Report Comment

3. Crunchy said...

The home-owner-ist/de-flation-ist, looked after by the pro-tection-ists are in for a double whammy.

Thank you, your Brown-est!

Tuesday, November 24, 2009 05:46PM Report Comment

4. jack c said...

@alan - "I wonder what would happen if the BoE suddenly upped the UK rates to 3%" - lets get this into perspective a rise from 0.5% to 3% is a 500% increase with 3% being less than half the long term UK average.

Tuesday, November 24, 2009 07:09PM Report Comment

5. alan said...

@ Jack C,
Thanks. That's the perspective I was thinking about....a painful one! I reckon its a 50:50 chance within the next year, my fund manager friend thinks its almost a racing certainty!.

Long ago I mortgaged with NatWest for 11.25% on my first house. I recall I got a .25% reduction and thought I'd done well.

Tuesday, November 24, 2009 08:13PM Report Comment

6. jack c said...

@alan - I purchased my first house during the miners strike (Thatcher vs Scargill) and the interest rate was regularly 15% (albeit we did get MIRAS in those days which effectively dropped the rate) - Israel raised rates by 0.25% earlier this week, Australia raised it's rates recently - it's just a matter of time (IMO) before UK Plc is forced to raise rates.

Tuesday, November 24, 2009 09:13PM Report Comment

7. Cynical said...

Sorry to point out some reality, but for almost every tracker mortgage that I have looked at, the SVR at the end of the tracker period is lower than the tracker rate....
Thus, were I to find a house that I really wanted to buy, I'd be looking for the shortest tracker available to take account of the low interest rates as soon as possible.
We still have historically low interest rates, money is still very cheap for those with current mortgages. Both of my brothers are on trackers for term at 0.19% and 0.96% over BoE base (with a 2% minimum).
Somehow, I can't imagine that they'll be very eager to change mortgages for a long time.

Tuesday, November 24, 2009 11:43PM Report Comment

8. Colin said...

It's not a question of if rates rise but when, I think everyone can agree on that. How high they will go is anybody's guess, what is for sure is the MPC will be walking the tightrope of inflation vs growth whilst also having to consider the impact on us poor commoners.

Wednesday, November 25, 2009 09:11AM Report Comment

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