Question about mortgage lending rates

mi-key

My wife and I are looking to buy our first house, and went to see our banks mortgage advisor to see what we would qualify for and get some details.

We went in two weeks ago, and were interested in a 4.99% fixed for 5 or 7 years 90% mortgage they were offering.

As I am self employed I had to go and get some additional info from the tax office, which took 2 weeks. We went back in to see them today, and they said no problem to borrow the amount we wanted, but they had put the interest rate up TWICE in the last two weeks !!! so the best 90% deal they were now offering was 5.5%, which on the amount we were thinking of borrowing added a fair whack to the monthly repayments.

Also asked about 95% mortgages, and the lowest rate they could offer was 5.84% ( up from 5.5% two weeks ago ).

So - question is - why would a bank raise the rates by 0.5% in such a short time ( the advisor actually told us they were putting the rates up faster than they could get the leaflets printed with the rates in ! ) when the normal interest rate hasnt changed ?

And, is it likely to just keep going up over the coming months, or might it come back down again ?

I cant really understand what they base the rates on - is there somewhere that shows what mortgage rates have been for different months over the past year so we can get some idea of the tends.

Has made us stop and think a bit as we dont want to take out a fixed rate mortgage now, and them find out that they have dropped the rate 0.5% again in a few months time.

Any help appreciated

Miss_Penny_Pincher_2

At the moment it doesn't look like interest rates will drop any time soon... but I don't have a crystal ball!

Rather than just going to your bank have you seen an independent whole of market mortgage advisor? They will be able to assess the mortgage for you and see which ones will lend to you despite being self-employed. You should be able to get a better deal that way.

Miss_Penny_Pincher_2

mi-key wrote:

why would a bank raise the rates by 0.5% in such a short time ( the advisor actually told us they were putting the rates up faster than they could get the leaflets printed with the rates in ! ) when the normal interest rate hasnt changed ?

My theory is they will charge the maximum they can get away with to earn the most profit! Obviously they still need to keep the rates low enough to attract customers but they sneak them up at every opportunity. The bank may be getting twitchy too about the possible interest rate rises as they won't want to give out 7 year fixed rate mortgages at 4.99% when the Bank of England base rate may become 6%, for instance. Your bank's interest increases do sound excessive though especially considering that there hasn't been a change in the base rate!

mi-key

Thats what confused me, why they had increased the rate by so much, and twice in two weeks, when there hasnt been a bank rate increase ??? If there had been I could understand it.

Have just had a quick look around, and Nationwide are doing a 10 year fixed rate 90% one at 5.08%, or 10 year fixed rate 95% at 5.38% - which makes a difference of over £50 per month on the repayments compared to what we have been quoted.

We bank with Lloyds ( mortgage is through C&G ) and before the increase, their deal was about the same as everyone elses best, which is why we tried them first.

The amount we are looking to borrow is only around 2.5x our joint income, so I dont think we'll have problems getting accepted by other mainstream lenders.

I cant see the sense myself though, house sales are pretty stagnant in a lot of areas, so just making it more expensive to borrow is going to slow the market even more, which will lead to less people taking out mortgages, so it does seem a bit like their shooting themselves in the foot.

stanmoresaver

Lets be honest here- these questions should be asked of your "mortgage adviser"- they can only do the job you require if you ask them the questions you need advice on- they cannot guess what you are thinking.

There are relatively simple answers to a few of your questions- but the most important thing is that you end up with the most appropriate mortgage for you and your needs and preferences

homer_j_3

Fixed rates have slightly increased across the board due to swap rates not the bank deciding off their own back. I dont think its important that you understand swap rates but just the fact that there are economic reasons why some products can become more expensive without much reason at face value level.

The other thing that I would say is that Banks and Lenders do not have to consider the BOE interest rates in the pricing of their products really unless it is a BOE tracker in determining the rates for their products. However, you will find that the BOE does act as a loose guide.

There are cheaper fixed rates out there but as previously mentioned, the longer you fix for, the longer the bank holds the gamble so will not price so keenly incase the gamble does not pay off.

Get yourself to a broker who can look at more than one lender, preferably a whole of market one .