Borrowers face record rise in lending rates

purch

You also have to factor in the quality of the asset.

At a time when Banks are trying to shrink their balance sheets, they will not want to add anything less than top quality assets, without expecting to receive a hefty premium for doing so.

In the current climate you can hardly call a residential mortgage a 'top quality asset'.

chucky

Gorgeous_George wrote: »

House prices will fall.

not everywhere

Gorgeous_George wrote: »

Mortgage rates will not fall much from their current levels. They will almost certainly rise later next year.

take this is rough example if and when rates go up on a 2% increase - if they go higher it's a higher amount you repay

£100k mortgage at 5% mortgage = £5,000 a year in interest
£100k mortgage at 7% mortgage = £7,000 a year in interest

you pay £2k more each year in mortgage interest

so on a 5 year fixed that equals to £10k or 10% of the mortgage that you could have saved reflected on the property price. the timing is everything but it's just a rough example.

Pobby

Sounds to me that the lenders are finding a way to rapidly recapitalise the balance books.

Gorgeous_George

chucky wrote: »

not everywhere

What, not where you live? :rotfl:

chucky wrote: »

take this is rough example if and when rates go up on a 2% increase - if they go higher it's a higher amount you repay

£100k mortgage at 5% mortgage = £5,000 a year in interest
£100k mortgage at 7% mortgage = £7,000 a year in interest

you pay £2k more each year in mortgage interest

so on a 5 year fixed that equals to £10k or 10% of the mortgage that you could have saved reflected on the property price. the timing is everything but it's just a rough example.

That works for an interest only mortgage. So, you could save £10K over 5 years by waiting but you will have spent £30K on rent and you will have to suffer a landlord.

GG

chucky

Gorgeous_George wrote: »

What, not where you live?

no i wasn't going there - it's best you look at any of the months that have had average drops of anything around -0.5%. by default there would have been areas that have not dropped in price for that month.

that's what happens when you look at averages - right?

Gorgeous_George wrote: »

That works for an interest only mortgage. So, you could save £10K over 5 years by waiting but you will have spent £30K on rent and you will have to suffer a landlord.

i was agreeing with you and you've got what i said the wrong way around plus i've not factored in capital repayments that would reduce the capital and allow you to pay further capital back making it more than a £10k saving.

by taking out a 'cheap mortgage' you save £10k over 5 years, the rental is now an additional cost on top of that. to be fair though, you would have to factor in stamp duty, legal fees etc... in favour of the renter when working all of this out.

julieq

Oh no, it's the Daily Express again

Thrugelmir

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. Banks historically tracked BOE base. As depositors receive less than base and borrowers pay higher. LIBOR is an inter bank lending rate. Has no direct impact on bank lending to consumers or companies other than if the interest rate on a loan is linked to it.

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. Banks SVR used to be around 2% above base. Fixed rates were often not much different to SVR on a 5 year fix. Fixed rates enabled people to budget. A gross margin of 3% to 4% is reasonable. The bank has to cover its running costs, pay FSA levies, pay shareholders dividends and corporation tax on its profits.

the banks need to increase revenue/profit - currently here is one of the areas that they're getting it back. Banks need to cover the bad debts in its mortgage books which due to economic situation will be higher than normal. Good borrowers will subsidise bad ones. Banks aren't interested in revenue just profitable lending margins. Not unlike any commercial trading company.

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. Wholesale funding is in short supply as the Western Governments need to raise funds from Asia and the Far East to fund budget deficits. As Government Gilts require higher interest rates to attract investors. Mortgage funding will follow. Volumes will not increase. As the money has already been borrowed and spent. It needs to be repaid in order for real liquidity to return.

LastMinute.com was valued as a Company at £530 million at its peak on an annual turnover of £3 million and no profit. In the end its share price collapsed.

People are treating the property market the same way. The era of the last 15 years is over. New game, new rules

Thrugelmir

Pobby wrote: »

Sounds to me that the lenders are finding a way to rapidly recapitalise the balance books.

Rapidly is what they would like , the reality is somewhat different.

Gorgeous_George

I thought 'file sharing' had replaced 'record lending' these days

GG