Borrowers face record rise in lending rates

Graham_Devon

Mortgage and loan rates are rising at record levels, despite historically low interest rates.

Figures show that the average rate on a five-year fixed mortgage rose by 0.63 percentage points to 5.56% in June - the biggest monthly rise since records began 14 years ago.

At the same time, the average rate on a £10,000 personal loan rose by 0.87 percentage points to 10.32 per cent, also the largest-ever monthly rise.
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The data also showed that the average two-year fixed mortgage rate rose by 0.49 percentage points to 4.47%, the biggest monthly rise since 1995.

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LibDem Treasury spokesman Lord Oakeshott said: 'Despite all the talk of green shoots, house prices are still falling, and rising rates will put further downward pressure on house prices.'

http://www.thisismoney.co.uk/mortgages-and-homes/article.html?in_article_id=488403&in_page_id=8&ct=5

Another record beaten! This story also applies to overdrafts and loans.

Mortgages are now nearly at the same rate that they were when the base rates were 5.5%. So all this talk of "buy now, it will save you interest in the long term" is somewhat dilluted by all this.

inspector_monkfish

good job Nationwide have just cut rates then....

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/5778404/Nationwide-cuts-mortgage-rates-for-customers.html

chucky

those rates are still historically cheaper than the 25 year average.

once people realise and more importantly understand that mortgage rates have zero correlation to the BOE base rate especially in the current economic climate the better.

and there have been mortgage rates drops too
http://forums.moneysavingexpert.com/showthread.html?t=1804691&highlight=

inspector_monkfish

chucky wrote: »

those rates are still historically cheaper than the 25 year average.

once people realise and more importantly understand that mortgage rates have zero correlation to the BOE base rate especially in the current economic climate the better.

and there have been mortgage rates drops too
http://forums.moneysavingexpert.com/showthread.html?t=1804691&highlight=

there will always be some correlation to the base rate for mortgages, just very very little at the moment.

whereas 3 or 5 years ago, if the BOE jumped, so did lenders - without any hesitation (especially if it was upwards!!)

Graham_Devon

If there is no correlation, howcome we have had many a post on here telling us this is the best time to buy while rates are this low?

They are at average when the base rate is 0.5%, and this is supposed to be good?

I honestly don't understand that

I see the correlation between "its ok, they are average", but don't see the correlation between now is the best time to buy a house as you will save more money on the mortgage interest than you would waiting for prices to drop.

chucky

inspector_monkfish wrote: »

there will always be some correlation to the base rate for mortgages, just very very little at the moment.

whereas 3 or 5 years ago, if the BOE jumped, so did lenders - without any hesitation (especially if it was upwards!!)

it was a slightly generalised statement - as you know there is usually some correlation between the SVR's/trackers and Libor in 'normal' times.

but the rates in the article were fixed rates which would be determined by the 2/3/5 year swap rates - the current spread on those is very profitable at the moment. i'm estimating a 3% profit margin on fixed rates at the moment.

the banks need to increase revenue/profit - currently here is one of the areas that they're getting it back.

once volumes increase they will start to be more competitive and this profit margin will reduce and the margin between swap rates and mortgage rates will reduce. by then the BOE rate will be going up so the current mortgage rates will look cheaper.

inspector_monkfish

chucky wrote: »

it was a slightly generalised statement - as you know there is usually some correlation between the SVR's/trackers and Libor in 'normal' times.

but the rates in the article were fixed rates which would be determined by the 2/3/5 year swap rates - the current spread on those is very profitable at the moment. i'm estimating a 3% profit margin on fixed rates at the moment.

the banks need to increase revenue/profit - currently here is one of the areas that they're getting it back.

once volumes increase they will start to be more competitive and this profit margin will reduce and the margin between swap rates and mortgage rates will reduce.

thats better

chucky

Graham_Devon wrote: »

I see the correlation between "its ok, they are average", but don't see the correlation between now is the best time to buy a house as you will save more money on the mortgage interest than you would waiting for prices to drop.

it depends how much you expect house prices to drop.

if you expect them to drop more than 10% in your local area it's worth waiting and seeing what the rates will be.

if it's going to be less than 10% getting a 5 year fixed could work out cheaper.

it's all down to what you expect in your local area and your circumstances to buy.

Gorgeous_George

Interest rates used to rise after the General Election and fall before a General Election when the Tories decided the rates. Rates used to rise in bigger chunks - none of this namby-pamby 0.25% nonsense.

Mortgage rates DO follow base rates most of the time. However, with the base rate at extraordinary low levels, borrowers needs play a more important part than usual.

When the base rate rises to 5%, I don't think mortgage rates will rise by 4.5% (to 9% or thereabouts). More likley that they will stay around the 6% - 6.5% mark.

GG

Wookster

This all comes down to the fact that there are not enough savings in the UK economy to satisfy the litany of debt (credit card/ mortgage/ corporate etc) in the UK economy.

Gorgeous_George

chucky wrote: »

it depends how much you expect house prices to drop.

if you expect them to drop more than 10% in your local area it's worth waiting and seeing what the rates will be.

if it's going to be less than 10% getting a 5 year fixed could work out cheaper.

it's all down to what you expect in your local area and your circumstances to buy.

Mortgage rates will not fall much from their current levels. They will almost certainly rise later next year (after the General Election and to curb inflation).

House prices will fall. Whether someone chooses to rent or buy is a personal choice. If prices were to fall by 10%, how much a potential buyer wishes to
spend on rent in order to secure that saving again is a personal choice. Buying a house for £100K today may be a better option than paying £6K rent for two years and saving £10K on the purchase price.

GG