Redstone mortgages. Just put my rate up by 0.85%!

Toby_dog_2 · 10 September 2007 at 1:07PM

I need some advice if anyone can help. I currently have my mortgage with a company called Redstone, Skipton, North Yorkshire. I took this out a year ago, thru a broker, because of some very minor, slight delayed payments on my previous mortgage, I had to use a broker as I couldnt seem to get a run of the mill mortgage with a good rate!
Anyway - i took out an interest only mortgage, just for 2 years to get sorted again. The interest rate started off slightly higher than normal at 6.000% and has increased quarterly with the Bank of England rises.
I have just had a letter today to advise me that they are raising my interest rate from 7.050% to 7.900%, a rise since 1st july of 0.85%!!! I phoned the company asap, as I thought this must be a typing error! Unfortunatly, I spoke to an irish girl, with a very broad accent, and from what she was said, there is nothing they can do, its all to do with the libor rate!
Please can anyone explain whats going on - my mortgage has just increased by nearly £100 in 2 months!! Are they allowed to do this?
If this is right - I need to change company asap, can anyone point me to a good company for people with slightly damaged credit ratings.

drrobert · 10 September 2007 at 1:18PM

The LIBOR rate is the interest rate at which banks lend money to each other. It's important because your mortgage company, Redstone, presumably needs to borrow money from other banks etc. to fund the mortgages it offers.

Usually the LIBOR rate is very similar to the Bank of England interest rate. Since the sub-prime mortgage crisis in the US, though, banks no longer trust each other (no-one knows if a bank or mortgage lender might go bust, as Victoria Mortgages did today). This means that banks charge higher interest rates for lending money to each other (higher LIBOR rates) to compensate for the risk. Although the Bank of England interest rates have stayed steady at 5.75%, LIBOR rates have risen to about 6.9%, the highest for four years.

This means that it's much more expensive for Redstone to borrow the money it needs to fund your mortgage, so they are passing that cost on to you. If you're on a variable rate mortgage, the Redstone are entitled to do this (whereas on a 'tracker' or 'fixed' mortgage, they wouldn't be able to do so).

The problem is that this LIBOR rate issue affects all lenders, so you might struggle to find a mortgage lender who will offer you a better rate. It's might be worth trying, though. I'm sure the mortgage advisors who post here will be able to give you more information on this.

Toby_dog_2 · 10 September 2007 at 1:38PM

Thanks drrobert - thats a nice clear explanation.
I'm still angry, but it softens the blow a little.

Conrad · 10 September 2007 at 5:11PM

Not all lenders are linked to LIBOR.

If you change mortgage now be careful to ensure:

1) The brokers IDD says he gives advice (not just information as this gives you a lot less protection)

2) That the broker will provide a written recommendationletter to confirm the new lender is not linked to LIBOR rates.

Get all this in writing up front, not later.

Lenders who are not linked to LIBOR but are in the sub prime category are:

COVENTRY BS
SALT (Derbyshire BS) - DID MY OWN BROTHER WITH THESE
SCARBOROUGH BS
THE MORTGAGE WORKS
CHELSEA

Essentially you need lenders that lend thier own money, NOT those that buy from money markets.

CARE!!!!!! - Redstone are not a lender. They are a company that bought your mortgage from another lender.

This time have the broker confirm in writing your mortgage will not be sold on to a third party.

Conrad · 10 September 2007 at 5:15PM

PS - I cant believe you were advised to take a variable rate. You might want to complain to the broker and if unsatisfied the Ombudsman. The broker should be able to demonstrate the option was 'THE MOST SUITABLE' - this is the key point here.

I am of the opinion that only fixed rates are suitable for people who have had some bad credit. Knowledgable brokers will have been fairly tuned into rising rate potential 1 year ago. Those that dont keep up with new, but prefer the back pages of newspapers shouldnt be giving advice.

Griptool · 10 September 2007 at 8:02PM

Redstone will go the same way as Victoria mortgages IMO, if I were you I would consider any way you can to repay this mortgage even if it means selling up, the cost of credit to borrowers with less than A1 credit will become very expensive over the next few months as the brokers on here probably know

MarkyMarkD · 10 September 2007 at 9:27PM

I don't think your advice is very sensible, Griptool, as the OP is almost definitely tied into their expensive mortgage by an ERC which will be prohibitively expensive.

Conrad - your comments are interesting but again not necessarily appropriate. Most major lenders will reserve the right to sell on (securitise) their mortgages in their terms and conditions. Northern Rock securitise most of theirs. Very many sub-prime lenders work only on this basis. By insisting in a lender who won't securitise you are ruling out much of the market.

Your comments about fixed rates are fine, as far as they go, but being tied in for a long time at sub-prime rates is not necessarily what a sub-prime borrower needs as it hampers remortgaging onto a prime product once rehabilitated.

Toby_dog_2 · 10 September 2007 at 9:31PM

Thanks for the information - but what happens to my mortgage if Redstone goes bust before I manage to get my mortgage changed to someone else?
Is there a chance I might lose my house? Now i'm worried!

MarkyMarkD · 10 September 2007 at 9:33PM

You won't lose your house because your lender goes into administration. It is in the administrators' best interests to get the most they can for the business's assets - and they will do that by selling the mortgages on to whoever they can get a good deal from. The new lender will likely be no worse for you than Redstone!

Toby_dog_2 · 10 September 2007 at 9:36PM

MarkymarkD - just seen your reply, I have to admit I am not the best when it comes to talking finance issues. I am trying my hardest to follow the thread though, and look forward to any advice I may get offered.

pikeydog · 17 September 2007 at 8:57AM

hi, I'm new to this fourm and also have a mortgage with redstone and have had a %79 rise in repayments. I have a year to go before I get out of my ERC (8,700) and want to spend these 12 months getting the best remortgag e I can. I have 2 CCJ's and a few defaulted credit cards due to credit vcard debt that is now all on arranged paymets with the credit card companies. I HAVE NEVER BEEN IN ARREARS WITH ANY MORTGAGE OVER LAST 25 YEARS. Where should I start to look for a new mortgage, will I have a chance of getting a standard mortgage? HELP!

Redstone mortgages. Just put my rate up by 0.85%!

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