MSE News: The mortgage ticking timebomb

GerryMcC

I couldn't agree more. I'm a mortgage broker and the margins lenders are currently working with are generally so high that they are making record profits from new business. The SVRs (standard variable rates) range from around 2.49% all the way to around 6% with some big names leading the way in the new great bank rip off! Frankly, it's a disgrace! Fixed rates are completely uncompetitive as are alot of the trackers. Those without 40% equity or deposit dont get a good deal in my opinion. My big fear also is when rates rise and people get stuck in rates that are 3, 4 and 5 over base that there will be financial hardship on a huge scale. SIMPLE RULE: dont look for the best rate, look for the rate the lender will charge after your "deal" ends. Chase the lowest SVR.
Oh and watch out for those "mortgage advisers" at the big high st lenders. Warning! They dont give advice - they give information. You have no recourse when you discover you've been had! Good example i had recently was a big player offering what looked like a good 2 year rate but comparing capital and interest with their interest only deal. My (new) client actually had a term tracker with Abbey at 0.49% above base for life and almost ended up with a 4.99% SVR from the "adviser". I did the maths and over the remaining term the difference in cost was a massive £229000! BEWARE!

_Andy_

Why shouldn't the lenders make a profit?
Why is a bank/lender making a profit considered a 'rip off' whilst a shop selling goods at a decent mark-up not?
Would it be better if banks didn't make a profit and therefore didn't lend at all?

dunstonh

October 2008. Base rate: 5%. Cheapest 5-year fix: 5.49%
October 2009. Base rate: 0.5%. Cheapest 5-year fix: 4.99%

Now look at savings rates. You can get 4.8% on a 5 year fix. Many are offering 4.x%.

The problem is that the banks are using savers money more (as they should) and to attract that they have had to pay better rates. Consequently, mortgage rates are higher. The base rate is largely irrelevant if the banks themselves cant get funding at that level. Savings rates are far too high for a 0.5% base rate but demand for funds is pushing them up.

However, long term savings rates have started to fall. So, that could indicate that banks are now beginning to obtain funds from other cheaper means and that could mean we see lower mortgage rates going forward.

Rafter

I couldn't agree less!

How can mortgage banks possibly be fleecing customers when they are reporting dramatic falls in profit? Martin, don't believe everything you read in the Daily Mail (from journalists with mortgages!)

How on the one hand can you complain about a 4.99% five year fix mortgage but be recommending 5 year savings bonds earning 5% plus?

The fact is banks weren't charging enough for mortgages in 2007/8 given the risk and savers earning less than base rate were losing out.

Now the tables have turned - savers have the power and are earning higher real returns (ie above inflation and and base rate) than ever before and as a result mortgage customers are going to have to pay more.

The stupid thing is that untimately grand parents and older people are chasing savings rates like never before which is driving up mortgage costs for their children and grand children. The two are ultimately connected.

Now in the bad old days before 'free market competition' the big mortgage banks and building societies would have got together and set an SVR across the board that would mean that everyone got a similar rate.

'Progress' now means we have some customers on older trackers paying less than 1% on their mortgage, some on base linked SVRs with Lloyds and Nationwide paying 2.5% (still way to low) and others with smaller societies and banks in trouble paying 6% plus. At the same time we have savings rates from 0.1% or less right up to 5% plus.

This is called progress and competition!

For as long as the Bank of England keeps base rate so low, distortions will keep building up and house prices will be propped up. This is great for people with a tracker or low SVR but for every winner there is a loser and as a result savers who aren't members of sites like these are earning pittyful rates and there is a whole generation of people earning decent wages who won't be able to buy a decent sized house to live in.

R.

Eric_Pisch

There is some flawed login in this article

The reason that there's currently a 4.5% intrest rate difference now to the 0.5% of a year ago is that the banks know the rate will not stay at 0.5% for long so fixing it for 5 years is a gamble in which they are sure it will go up so the are covering there backs to an extent.

MSE_Martin

Eric_Pisch wrote: »

There is some flawed login in this article

The reason that there's currently a 4.5% intrest rate difference now to the 0.5% of a year ago is that the banks know the rate will not stay at 0.5% for long so fixing it for 5 years is a gamble in which they are sure it will go up so the are covering there backs to an extent.

That's quite true - but I note that and go on to look at the gap between swop rates - which is the rate that banks fund their long terms fixed with and the rate they charge

michaels

Hi MSE Guy

Already discussed here - perhaps you could merge magic?

http://forums.moneysavingexpert.com/showthread.html?t=2095057

Conrad

Banks need to rebuild thier balance sheets in order to be able to lend. Nationwide for example are experiencing much more lending demand than they can meet.

As a result savings rates are being driven higher and in turn lending rates are 'seemingly' high.

I realise we all want a bargain in life, but we need to look at things in the round.

Noble_Savage

MSE_Martin wrote: »

That's quite true - but I note that and go on to look at the gap between swop rates - which is the rate that banks fund their long terms fixed with and the rate they charge

Thanks for responding to that one point, Martin. I wonder if you would like to say something about those lenders who raise their funds mainly from the retail savings market? Suggesting that 0.50% is their cost of funding would be somewhat disengenuous, wouldn't you agree?

mbailey

So as it stands the mortgage/saving rates are nothing to do with the Bank of England base rate.