Wednesday, August 26, 2015

“Savvy” homeowners lock in fixed rates before rates fail to rise

Homeowners rush to remortgage amid fears of a rate rise as home loan approvals jump to 17-month high

So, Carney's amusement arcade in the home owner carnival is rolling them up to commit to expensive fixed rate mortgages, making them feel "savvy" whilst the banksters get off rotten rich. Sealing in necessarily expensive fixed term mortgages. Meanwhile, in the real world, deflation is setting in with oil below $40, China cratering and price indexes along with interest rates set to turn negative. Hell would freeze over before BOE raises rates until inflation gets above 1.5%. We have a long way to go.

Posted by libertas @ 10:56 PM (5988 views)
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13 thoughts on ““Savvy” homeowners lock in fixed rates before rates fail to rise

  • Many people fix rates just so that they know how much they’ll be paying each month. A simple budgeting meaure. Nothing more sinister than that.

    Take a chill pill, Libby. Kick of your shoes and put on some sounds. Life’s too short to foam at the mouth so regularly.

    And you still haven’t told me more about that plan to bulldoze Heathrow airport and turn it into a housing estate. You are a little tease!

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  • @Libertas

    By the time it’s obvious that inflation and interest rates are genuinely rising, it will be too late to get a cheap fix. If you want to save some money using trackers, you implicitly have to be quicker than the rest of the market to detect when to switch to a fixed rate – by the time you’re reading about it in MSM, cheap fixes will have gone.

    Maybe you’ll pull it off but I prefer to fix now and concentrate on other things.

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  • The issue is commodities and energy flows. The rest of the economy is built on these fundamentals. So called deflationary pressures are linked to the slowdown in the BRICs. The inflationary pressures experienced in the run-up to 2008 were caused the supercharged growth in the BRICs. Eventually China will recover and when it does in a supply constrained World commodities namely oil will rocket again. To understand macroeconomics and geopolitics is to understand commodities and energy flows. Fix for longer term stability or play Lib’s game (whatever that is). The choice is yours. I opted for stability with a 10 year fix (good rate – large deposit). When commodities rise again the West will flunk back into recession. Global economic activity is behaving like a pendulum.

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  • Central bank interest rates might not rise, but building society rates may.

    Will be interesting to see how much they decouple. Either way, western economics, and now eastern, now on central bank life support.

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  • The beauty of repayment mortgages is that an increase in rates does not have a proportional increase in payments. For example, a 25 year repayment mortgage at 2.5% will only increase by 30% if rates double to 5% but an interest only one will double. The 30% will be even lower when the reduced principal is taken into account. That’s why interest only is such a bad idea. I’m happy to pay for that protection. If you look at trackers vs fixed, there’s hardly anything in it anyway, apart from the requirement for a bigger deposit and the sleepless nights. I’m going for a 4 year fix.
    The fact that homeowners pay a completely different price to renters or homebuyers to consume the same service is another story… We would have suffered an increase in rent of at least 5% over the last two years, instead we get rewarded with a decrease in mortgage of 13%. Any market where different participants pay wildly different prices is going to be inefficient. We’ve had to commit to an enormous mortgage to protect ourselves from rising rents. If we had proper property tax, we would have a much smaller mortgage but still have to pay for increasing land values like renters. I’d be more than happy to take this on in the interests of fairness and efficiency.

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  • @3 – “Central bank interest rates might not rise, but building society rates may”. True, but this disconnect can work also to lower building society rates. It comes back to supply and demand, and banks have been supplying more mortgage lending to make up for less business lending over the past few years (corporates have been holding cash and borrowing more on bond markets, and real investment by them is sluggish anyway, and SME repayments have been running faster than new loans), so more competition among lenders in the mortgage market has had a downward effect on rates.

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  • banks have been supplying more mortgage lending to make up for less business lending over the past few years

    Not actually sure how true this is. UK government have been effectively *giving* money to banks and building societies for years, first under the FLS and more recently via a number of other measures.

    The impression I get is that banks no longer need or want any more mortgages, hence the increasingly tough criteria.

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  • “giving” money to banks and building societies – wouldn’t this to lead to more mortgage lending? Or are you questioning the word ‘supplying’ on the grounds that it’s not the banks’ own ‘supplies’?

    We could debate whether the banks had the tough criteria imposed on them or imposed it upon themselves, but the dip in lending caused by these criteria was temporary.

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  • “giving” money to banks and building societies – wouldn’t this to lead to more mortgage lending?

    And indeed it did. FLS ”on steroids” was unveiled in April 2013 – remember the big rises that came afterwards as a result?

    Or are you questioning the word ‘supplying’ on the grounds that it’s not the banks’ own ‘supplies’?

    UK taxpayer takes ALL the risks. Nice of the tories wasn’t it? Plan another housing bubble to engineer another 5 years in power. Lovely.

    We could debate whether the banks had the tough criteria imposed on them or imposed it upon themselves, but the dip in lending caused by these criteria was temporary.

    The eligible few went nuts and increased their borrowing dramatically, many other left out entirely. However, it all seems to be cooling to me. I’m seeing loads and loads of reductions….and many becoming ”unexpectedly re-available”.

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  • I agree.

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  • @8/9

    FLS was withdrawn from mortgages in late 2014, MMR then pushed rates down further through to early this year. Rates are supposedly inching up, but are still far below where they were at the end of last year.

    Do you really think a few mortgage products being withdrawn would lead to a speight of reductions in your area?

    Granted, the frenzy seems to be over but the party is still going. Rates should be about to inch back up (and, due to other factors, prices look likely to start falling soon) but I think it’s too early to call.

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  • Well, the LR thinks the market is cooling anyway (see article I posted above).

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  • Do you really think a few mortgage products being withdrawn would lead to a speight of reductions in your area?

    FLS has. Go back and look at monthly % increases before and after April 2013. It’s clear that cheap FLS money [42 billions in total] has had a significant influence house prices and on availability of mortgages. And the FLS lead attack on interest rates – reduced in a fairly major way – also pushed many savers toward BTL.

    There are a number of factors at play here. Less cheap money in the system, price rises have pushed housing out of the reach of many, a fear of rising interest rates, less confidence in employment and the general economy, stagnant wages and a general realization that houses are simply overpriced. The strong pound might have also put off some foreign investors…

    Today, after checking my email alerts, I’m still seeing many reductions and not small either; some are as much as 30k.

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