Are we being conned?

RichardOF

I have a 5 year fixed mortgage that I took out with the Abbey in August 2007. This was at 5.89% on an interest only mortgage and at the time the base rate was 5.75%.

At the time when I took the mortgage out with the Abbey (probably in June 07 ish) this was the correct thing for me to do. Obviously in hindsight I am kicking myself.

Over two years on the base rate is now 0.5%. After speaking to the Abbey and looking at their rates online if I were taking out a mortgage now for 3 yrs fixed (nearly finishing at the same time as my current mortgage) it would be at........ 5.89%!!!

I fail to understand the logic in this when the base rate is over 5% lower than when I took my mortgage out over two years ago.

Can someone please explain this to me as all can see is that we are paying over the odds interest rates so that the mortgage companies in bank can make larger profits to make up for their initial completely iresponsible lending.

Many thanks

opinions4u

RichardOF wrote: »

I have a 5 year fixed mortgage that I took out with the Abbey in August 2007. This was at 5.89% on an interest only mortgage and at the time the base rate was 5.75%.

At the time when I took the mortgage out with the Abbey (probably in June 07 ish) this was the correct thing for me to do. Obviously in hindsight I am kicking myself.

The reasons why you took a 5 year fix at the time are still valid. a 5 year fix today would be applied at a similar rate. You're not Mystic Meg. You won't know whether or not the decision was financially beneficial until 2012.

If a 5 year fix was right for you at the time, just relax and accept variable rates can go down as well as up. What's done is done and there's no point beating yourself up over it.

Over two years on the base rate is now 0.5%. After speaking to the Abbey and looking at their rates online if I were taking out a mortgage now for 3 yrs fixed (nearly finishing at the same time as my current mortgage) it would be at........ 5.89%!!!

I fail to understand the logic in this when the base rate is over 5% lower than when I took my mortgage out over two years ago.

Banks don't raise fixed rate money at Bank of England base rate. Swap rates are are far better guide of the price a bank pays to raise fixed rate funds. 3 and 5 year rates are less than 0.5% lower than they were 12 months ago, but lenders also have to price in the higher risk of lending in the current environment.

Basic supply and demand also comes in to the equation. The supply of fixed rate funding from the wholesale markets has fallen massively. But banks are still desperately in need of funding to support their existing mortgage book.

Pricing new mortgages cheaply isn't a particularly sensible strategy when you can't even cover the commitments on your balance sheet for exsiting lending.

Can someone please explain this to me as all can see is that we are paying over the odds interest rates so that the mortgage companies in bank can make larger profits to make up for their initial completely iresponsible lending.

When Abbey lent you your money originally, they did so on the back of an agreement to pay their funders back at a fixed rate for 5 years too. That rate hasn't reduced. Why should yours?

By the way, many banks have announced massive losses over the past 12 months. Irresponsible lending, yes. But it doesn't sound like profiteering to me.

Are we being conned?

No. You're paying exactly the rate you expected to pay for the period of time you expected to pay it for. I fail to see a con.