Monday, April 2, 2012

Choke holds on mortgages tightens

Mortgage squeeze hits yet MORE homeowners, as now the Co-op hikes monthly payments

The Co-operative Bank has become the latest lender to tighten the squeeze on homeowners by hiking their mortgage payments.

Posted by happy mondays @ 03:02 PM (3185 views)
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23 thoughts on “Choke holds on mortgages tightens

  • mark wadsworth says:

    Schadenfreude ist die schönste Freude!

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  • Base rate is un-changed, so must just be the banks attempts to make money. Tough if you are a borrower.

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  • @Will – Base Rate is not what banks borrow money at except in the overnight market. You’d be mad to fund a 25 year mortgage with overnight funds. Although who knows, Mervyn et al might not grow a pair and we’ll still be at 0.5% in 22 years’ time…

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  • ‘A borrower with a £150,000 interest-only loan would see their payments go up by £62 a month, from £530 to £592.’

    So the assumption is that their borrowers have no means of re-paying the capital. This is more worrying than interest rates rising.

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  • sibley's b'stard child says:

    Exactly MW, funnily enough there was a lolz-worthy letter in the Metro this morning from a clearly over-extended borrower who was claiming that he couldn’t re-fix his IO mortgage so was reverting to the lender’s SVR at a higher rate. I mean, to paraphrase him, how else are homeowners supposed to buy a home if they can’t afford a repayment mortgage. Insert punchline here.

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  • sibley's b'stard child says:

    Yes Will, it’s all part of the new paradigm that, with the most unexpected of results, appears to have backfired spectacularly.

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  • Sib’s – you might be interested in a recent set of stats

    “1.6m homes on interest-only deals with no repayment vehicle. One in seven UK households are sitting on an interest-only mortgage with no repayment vehicle, new research shows. Unbiased.com data shows 1.6m properties are simply paying off the interest each month and not repaying capital or saving anything towards paying off their mortgage debt in the future”

    Full article @ http://www.mortgagestrategy.co.uk/housing-market/16m-homes-on-interest-only-deals-with-no-repayment-vehicle/1048829.article

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  • Jack C,
    Lots of IO mortgages indeed, but if you bought 20 years ago then you’d still be sitting on a huge pile of equity just through inflation alone. Eventually wage inflation will allow those people to start making repayments.

    Sibs @ 5,
    Lately I’ve been looking at the property market, toying with the idea of buying something. At current rates I could quite easily afford the repayments. But if rates rise, or (more likely) if prices fall and I can’t remortgage at the end of my fixed period because I’m in a higher LTV-ratio bracket, then I would struggle to repay at SVR. Question is, do I take the gamble that the govt will always bail out the market?

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  • general congreve says:

    Has anyone stopped to think the banks may have the intention of managing rates so they can keep as many people as possible on IO indefinitely? One nation renting from the banks. ‘Homeowner’ responsible for management and unkeep of the property, all income paid on debt servicing on the property accrued to the bank. Fits in nicely with their ambition to own everything and everyone.

    @8 – I have no doubt the government and central banks will keep trying to fix the market, as they evidently are constantly trying to ‘fix’ everything, from interest rates, house prices, share prices, the gold price etc.. However, it’s not a matter of if, but when. With ‘when’ being when the wheels finally come off their attempts to fight reality.

    A good example of the problem with ‘fixing’ things’ is the 1Trillion Euro LTRO of freshly printed money, that the ECB summoned up to paper over the last Greek Bond crisis. It is already set to run out in only another two months. Just goes to show how bad things are in the global financial system and the highly inflationary and economically damaging lengths they will have to go to ‘fix’ things.

    So, personally I wouldn’t be getting myself into any debt-based house purchase right now, not with the risks from interest rates and capital loss. However, bear in mind the capital loss incurred on your savings by inflation while you wait for house prices to finally correct.

    Damned if I do, damned if I don’t you say? There is one thing you can do about that (if you haven’t already) and you all know very well what it is by now.

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  • mark wadsworth says:

    General C: “Has anyone stopped to think the banks may have the intention of managing rates so they can keep as many people as possible on IO indefinitely? One nation renting from the banks. ‘Homeowner’ responsible for management and unkeep of the property, all income paid on debt servicing on the property accrued to the bank. Fits in nicely with their ambition to own everything and everyone.”

    Yes I have and yes, this is quite clearly their intention.

    Rates too high = fall in house prices, people defaulting etc, not good for banks.
    Rates too low = people not paying much interest and actually paying off mortgages, not good for banks.
    They need that ‘Goldilocks’ interest rate so that few people dip into nequity but few people manage to pay much off either.

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  • i remember the 90`s says:

    All this moaning about a small increase i remember when it went from 10% to 15% in a matter of weeks thats what u guys need to break the back of this artificial house market ,too much gov interference its all right for me being mortgage free but most have a future gen coming through to worry about.

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  • i remember the 90`s…. do you? Not very well i’d say. My recollection was we went from 10% to 12% in one day with a promise to 15 (1 rises in a day from 10) to defend the GBP within the snake but the market rejected it and rates retreated back the other way shortly thereafter. I seem to remember that short sterling was never discounting 15% anyway, and old lament got his ar5e well and truly kicked by the markets ergo a withdrawal from the ERM and the seeds were sown for us not to venture into the Euro and hooray for that. Never have the tories created a fantastic result from their own f*ck up before or since.

    Those were the days! Or are you talking about something else?

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  • TM – Oddly enough I remember that event very well because for the first time in my life I was out of work (September 1992) – came home to tell the Wife I’d lost my job and then see on the news the interest rate was up by 2% in one day. According to Moneyfacts publication it was 16.09.1992 where the rate went from 10% to 12% but it was back to 10% by the 18th and down to 7% by 13.11.1992

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  • happy mondays says:

    With all the other inflated prices (even though inflation is going down) fuel on the up, food cost, socializing, etc this small amounts of interest rises must be really hurting some people.. Which might i add that i am not happy with, but neither am i happy with my returns on my hard earned savings & house prices still 30 – 40k over priced Min…

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  • sibley's b'stard child says:

    Thanks Jack, more grist to the mill. I’d wager a fair number of IO mortgagors might well be classed as private renters given that at the end of the term (short of a lottery win) they’ll be handing back the lender’s asset back to them.

    Drewster, that’s a question for Jack I would have thought; i’m unable to differentiate between what I think will happen and what i’d like to happen.

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  • “Lots of IO mortgages indeed, but if you bought 20 years ago then you’d still be sitting on a huge pile of equity just through inflation alone. Eventually wage inflation will allow those people to start making repayments.”

    Interestingly my partners mum took out a right to buy on there 3 bed council house for around £40k in the mid 90’s. It is now being marketed for £160k… Anyhow, since the mortgage is interest only she still owes around £40k – Genius..
    Now she is rapidly approaching 60 and realises that there is no way for her to pay it back apart from downsizing which she can’t do without moving to a worse area.

    There must be millions in this situation where, yes the mortgage is relatively small < 60k but they will not be able to pay it back before retirement as it is just impossible.

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  • drewster (Monday, April 2, 2012 06:05PM)

    I agree those who bought 20 years ago will have significant equity and should be able to re-schedule but it takes some doing (extreme example I know) going from IO to Cap repayment if you only have say a 5 year term remaining. The bottom line is people need to repay the capital at the end of the term of the loan and the less time you have available the harder it is to do so. Borrowers may have other means of repayment (lump sum from pension or savings etc) but often feel it is a grudge move to part with their cash as once it goes into bricks and mortar it is effectively “dead money”

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  • Khards, any idea how much your partners mum has paid in interest over the past 20 years?

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  • general congreve says:

    @10 – Must have missed that MW!

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  • @18 – Around 48k I believe. The missus told me she was paying somewhere around £200/m in interest. I do not have 100% of the facts, but have been told that in the past she extended her mortgage to buy a 5 year old car that she needs for work. She is fairly careful with her money and doesn’t go on holidays etc.. I think that after her living costs and supporting a 30 odd year old who hasn’t left home yet leaves her with very little of her wages left each month (she works as a carer).

    Interesting anecdotal; The 65 year old I sold my mobile disco business to also owed £85k on is mortgage which is why he has to start DJing again. Not something you want to be doing at that age – lugging heavy equipment around at 1am.

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  • khards (Tuesday, April 3, 2012 09:51AM & Tuesday, April 3, 2012 10:11AM)

    This seems like a typical example of a situation Tom McPhail of Hargreaves Lansdowne pointed out several years back ie a lot of people will all be hitting a brick wall at the same time and the value they think they will receive and what they actually receive (from what effectively is a forced sale) will be two different amounts.

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  • Hi Jack @ 13. I remember it well too, as a lairy ship it in shag merchant on LIFFE i was buying into the “we will protect the pound with the ERM at all costs”…. oh how naive can a oik from the wrong side of the tracks be be. Still an expensive lesson to me, but one that i still maintain to this day was worth it.

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  • There seems to be a lot of people I have known or met in this situation.
    There are a lot that got caught up either in MEW or the housing boom taking on £1000’s of debt in and around 2007/8 at the average age of 53.On average when they reach retirement in 2020 (12 years time) they will need to repay the capital.

    It is not easy repaying £60k over 12 years if you have little or no disposable income left at the end of the month. You would need to magic up £400+ every month until the day you retire.

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