Fixed rate mortgages - have juicy deals gone for good?

Conrad

I'm very interested for some considered views on the short to medium term prospects for fixed rates.
Ok there are some fairly decent 2 year fixes but for most that is too short a term, and the rates / fees are appreciably higher than those of the last 5 years or so - (with some exceptions such as the rate peak fixes). I for example enjoyed average fixes over the last 5 years of c4.1%. These 3-5 year fixes do not exist now.

BACKGROUND

In the last 5 years or so, taking the <75% LTV as a benchmark, a typical 3 year fixed rate was priced around the 4 - 4.5% mark. I know this from looking back at all such business I did myself.

CONTRACTION

Lender reps used to bemoan the slim margins they made on such business, which was driven by fierce competition.

Now only a handfull of major players remain in the market, given dozens closed thier doors to residential (Deutche Bank, Preferred, LMC, TMB, Capital Home Loans etc, etc), many were taken over and others such as Bristol & West severley restricted lending.

CARTEL - who remains

HSBC
RBS (inc Nat West etc)
Lloyds (inc C & G, BOS, Halifax etc)
Santander (inc Abbey A & L, B & B etc)
Barclays (inc Woolwich)
N Rock
Nationwide (inc West Brom, Cheshire, Portman, UCB, TMW etc)

Most of the small regional societies remain, but they are very cautious and unable to assist the bulk of clients. That is to say, very restrictive criteria that tends only to allow the very top tier safe clients).

LESS COMPETETION = HIGHER RATES??

MY QUESTION - WHICH SCENARIO WIIL WIN OUT?

1) We will not see those juicy low fixed rates for many years, despite the BOE miniscule base rate given lenders can make a tidy margin as the cartyel factor is bought to bare (yes I know cartels are illegal - but lenders will easily hind behind thier claim to needing to balance thier books better)?


2) These new juicy margins will attract new lenders and increase competition, driving fixed rates lower? (There are apparantly trillions out there sloshing around looking for a return from the likes of Quatari soverign wealth funds and hungry hedge investors)?

kennyboy66_2

Conrad wrote: »

LESS COMPETETION = HIGHER RATES??

MY QUESTIONS - WHICH SCENARIOS WIIL WIN OUT?

1) We will not see those juicy low fixed rates for many years, despite the BOE miniscule base rate given lenders can make a tidy margin as the cartyel factor is bought to bare (yes I know cartels are illegal - but lenders will easily hind behind thier claim to needing to balance thier books better)?


2) These new juicy margins will attract new lenders and increase competition, driving fixed rates lower? (There are apparantly trillions out there sloshing around looking for a return from the likes of Quatari soverign wealth funds and hungry hedge investors)?

I would have thought that most mortgage advisors would understand that there is no direct link between base rates and fixed rate mortgages.

1) Cartel means collusion - I doubt very much if there is any collusion in the mortgage market.

2) Foreign investors are selling risk free (hopefully!) UK Gilts. Why would they want to get involved in risky mortgage lending in a falling market.

Cannon_Fodder

I lean towards scenario 1 applying for the short term.

They've often got to repay the taxpayer, who can argue with their sensible, profit-making rates?!?

For the medium term, I would expect that by the time the second scenario came to pass, if it would, that BoE rates would have risen, negating new competition.

In a year or two's time, whilst the margins may have been trimmed down, the % for the end customer will be where they are now, or higher.

carolt

I'd guess that fixed rates will continue to rise in the short/medium term, but once house prices have fallen to a level where banks no longer have to worry about losing theiir shirts if they offer favourable rates and attract lots of punters, rates will improve.

Obviously if inflation, esp wage inflation goes through the roof, then interest rates and fixed rates will have to rise accordingly.

What do you think, Conrad?

It's your job to advise people on this, isn't it?

Conrad

kennyboy66 wrote: »

I would have thought that most mortgage advisors would understand that there is no direct link between base rates and fixed rate mortgages.

1) Cartel means collusion - I doubt very much if there is any collusion in the mortgage market.

2) Foreign investors are selling risk free (hopefully!) UK Gilts. Why would they want to get involved in risky mortgage lending in a falling market.

My post made it clear the link between BOE and retail rates is largely broken. I also highlighted cartels are illegal.

Why would foreign, or for that matter any investors want to get into lending again - well because spreads have never been so high - it's easy money.

Conrad

carolt wrote: »

What do you think, Conrad?

It's your job to advise people on this, isn't it?

Well if Mervyn King admits he doesn't know what the near term has in store, probably not much hope for a thicky like me!

Hence why I'm interest in others opion.

Mind you I sold my B2Ls in 06 and 07 so it's amazing what a lack of a degree can do for you. All those degree holding econmists didn;t see the bust comming, ha.

carolt

Don't be bitter about your lack of degree, Conrad. Whilst having a degree proves education, lack of degree does not prove lack of intelligence, maybe just lack of opportunity/interest.

I find your posts generally interesting, though you seem to turn bearish/bullish on a whim (possibly based on whether you are trying to sell/buy?).

Do agree with you re economists. Not that they'd be any brighter if they had no degrees, obviously.

Graham_Devon

I don't think we will have juicy rates for a long time.

Neither do I think they can be classed as anywhere near juicy now. They are roughly 12x the base rate and a long way from the LIBOR rate too.

We only regard them as juicy because they are just above what they were 2 years ago, so they SOUND good. In reality, they are massively more expensive considering the economy than they were 2 years ago.

DiggerUK

The lenders never offered "Juicy Rates", the only reason they became juicy was when everything began to unravel, and they were left with rates tied to BOE.

Those lenders who had covered their backsides, by having "small print clauses", were the ones with unhappy customers. A lot of borrowers soon found out that "BOE trackers" didn't do what they said on the tin.

The masters of the universe, who were too dumb to see their mistake, are busily checking every dot and comma on mortgages they issue, to make sure they don't drop themselves in it again.

Some took the quick exit and simply stopped issuing Trackers.

As the lenders are stuffed with toxic debts, they have no choice but to hike rates. They are not making vast profits anymore from new business.

Most rates in US are already over 4.75%, Japan not far behind. All the CB rates are next to ZIRP. What makes anyone think it will be different here.

If you have a mortgage, hang on, it's gonna get worse.

Best of fortune.

Thrugelmir

You speak of a Cartel. Yet prior to the demutualisation of the Building Societies. The retail banks were not dominant in the UK mortgage market.

The explosion in available credit was the down to the availability of wholesale funds from the Far East and securitisation of mortgage debt.

As we all know now the building societies that demutalised became sales operations. Volume driven. They weren't run by bankers. Traditional risk assessment , lending criteria etc went out the window.

We are now heading back to a bygone era. Retail bankers will again rule the roost. Limited funding which there was previously. Means that money is lent in a proper and responsible way.

Fixed rates are a money spinner for lenders. What's a £1,000 product fee for when you're already a customer?

Mortgages will be expensive for all new borrowing. Whether it be SVR. Fixed or Tracker.

As for a cartel, not really. Due to the sums involved its only the big players that raise the funding to support the mortgage market.

Our best hope is that Tesco's takes over NR's operation. And breathes new life into the sector.

I think we shall see the rebirth of locally based building societies/ credit unions and banks. Whose aim is to support the local community. I believe Birmingham City Council are already investigating this idea.

As they say Rome wasn't built in a day. And its going to take 10 years at least for this particular storm cloud to pass.

As the banks are far from returning to normal. A further dip in the economy could raise the cost of money yet further.

biglugs

All those degree holding econmists didn;t see the bust comming, ha.

Actually many of them did. Only the press and media (especially the Express, Beeb and Channel 4) would never publish any news that would upset their cosy world.
Many economists have been saying for years that the debt spiral was getting out of control, and that it would end horribly, but who ever wants to listen to moaning minnies like them when we're all getting RICH RICH RICH!!!!
Until of course we all get POOR again, when everyone starts looking for people to blame (not themselves of course, they weren't being greedy) and so economists get it in the neck.
Even Gordon Brown and Alastair, Darling are doing it - according to them the entire recession is a credit crunch which started in the US. Nothing whatsoever to do with 12 years of a Government allowing record unsecured and secured lending, with little regulatory oversight, as long as the stamp duty and VAT kept flowing into the government's coffers.