Mortgage borrowers vigilant as future of interest rates uncertain

Thrugelmir

An often asked question on this forum is whether to fix or not, and where are interest rates heading.

Mortgage borrowers vigilant as future of interest rates uncertain

An upcoming change of government means that the future of interest rates remains in the balance. Unless the incoming Prime Minister, whoever that may be, acts fast to reassure international markets of the UK’s ability to deal with its financial problems there could be a run on the pound and a hike in interest rates.
Those with large mortgages who would suffer from an increase in interest charges should remain vigilant. Rates are rising anyway amongst the smaller lenders which are forced to increase returns to savers to attract funds and this gets passed on to borrowers in the form of higher Standard Variable Mortgage Rates.
‘Some economists believe we will still be at 0.5% by the end of the year whilst others see us at 2.5%,’ commented Andrew Montlake of mortgage broker and IFA Coreco Group. ‘That is a big difference of opinion. I do believe we will see a change by the third quarter of the year, and see Bank Base Rate at 1% to 1.5% by the end of the year.’
Several mortgage lenders – mostly the small building societies – have already increased their variable rates and as soon as Bank Base Rate moves up, the rest will follow suit, with some probably taking the opportunity to improve their profit margins with a rise larger than any BBR increase.
Conversely, increased competition is bringing rates down in the short term - but all borrowers should be aware that this might be a temporary respite. Homebuyers are already suffering, even at today’s record low rates, with a shocking report from housing charity Shelter revealing that nearly a million borrowers are paying their mortgage or rent on credit cards.
This is not a good move. Homebuyers would be better off contacting their mortgage lender and negotiating lower repayments through a switch to interest-only payments or extending the term of the loan temporarily, rather than run up debts with the credit card companies which will be quite prepared to take a defaulting borrower to court.
Recent figures released by the Bank of England reveal a marginal fall in the cost of the average two-year fixed-rate deal for borrowers with a 25% deposit, down during December to 4.06%, the lowest level since May last year. The average two-year fixed rate was 4.47% in September. This is good news as the obvious safeguard against rising rates is a fixed rate deal and the price of longer term five-year fixes has also fallen.
For those with only a small deposit, Santander is cutting its base-rate trackers at Abbey and Alliance & Leicester by up to half a point and introducing a new deal for borrowers with only a 10% deposit – good news for first time buyers. Its 90% loan to value is probably the cheapest on offer at 4.99% for a two-year tracker with a £995 fee.
Yorkshire Building Society has cut its fixed and tracker deals by up to 0.6% and it is offering a two-year fixed-rate deal available up to 75% loan to value with a rate of 3.79% and a £495 fee or a three-year fix at 4.39% and a fee of £495. Last week Chelsea, Coventry, Halifax, HSBC and Nationwide all cut some fixed rates and ITL mortgages expanded its range to include competitive 85% LTV fixed and tracker rates.
For those who want to secure their borrowing costs with a fixed rate, Cumberland Building Society has a two-year fix at 3.49% on a deposit of 40% or more with a fee of £995, while Newcastle Building Society is offering a five-year fix at 4.89% on loans up to 80% and a fee of £588 - a very good deal when you consider that longer term fixes have rarely fallen below 5%.

http://www.citywire.co.uk/personal/-/finances/mortgages/content.aspx?ID=376441&re=8098&ea=237867&ViewFull=True

Rosentile

Thrugelmir wrote: »

The average two-year fixed rate was 4.47% in September. This is good news as the obvious safeguard against rising rates is a fixed rate deal and the price of longer term five-year fixes has also fallen.
For those with only a small deposit, Santander is cutting its base-rate trackers at Abbey and Alliance & Leicester by up to half a point and introducing a new deal for borrowers with only a 10% deposit – good news for first time buyers. Its 90% loan to value is probably the cheapest on offer at 4.99% for a two-year tracker with a £995 fee.

I spoke to Alliance & Leicester this morning regarding products I could switch too, as currently on the SVR @ 4.99% after coming off a 2 year fixed at the end of September. My property is worth approx £166000 with a mortgage of £155,000, I have a bit in savings to reduce to £150,000.

They have come back with no products available, I would have to reduce my mortgage by £30,000 for a 2 year fixed at 4.99% or £35,000 for a 4.35% fixed.

I told them about the post and link above and was told they do not just take into account LTV now, but a number of factors. What could these be?, I dont think I have any adverse credit rating. I’m also really p**sed off regarding them running 2 SVR with new abbey mortgage customers @ 4.24% and current alliance & Leicester mortgage account holders going onto SVR @ 4.99%.

HELP!!! expecting our 1st baby in the summer and would like some security over the next few years. Any ideas?

PS - Forgot to say, currently on interest only. Does this effect what deals they would offer me?

beecher2

Being interest only can't be helping. Also, they'll have different deals for new customers to the ones they offer existing customers. Save as much as you can and hopefully add to your £5k overpayment pot.

Rosentile

beecher2 wrote: »

Save as much as you can and hopefully add to your £5k overpayment pot.

I agree totally, but to save another £25K to get down to good LTV rate is going take years!

There must be hundreds of thousands of people in the same boat who have taken mortgages out with 10% and 20% deposits, these being totally wiped out with the recent house price crash? and with interest rates looking likely to go up, there surely is going to be another round of repossessions over the next year or so.

VIGILANT22

[QUOTE=Rosentile;29042085].

My property is worth approx £166000 = 100%
with a mortgage of £155,000, = 94%
I have a bit in savings to reduce to £150,000 = 90.36%

PS - Forgot to say, currently on interest only. Does this effect what deals they would offer me?[/QUOTE]


The LTV is the problem as is interest only, many lenders have restricted interest only to a min LTV

surreybased

Hi,

Also wonder if lenders are being caution about property valuations which will change the LTV. Guess it will depend on when you bought your house and for what value.

I think the advice is to try and pay down as much as you can when you can..its the best strategy so that you're not too dependant on IR rises.

Thrugelmir

Being on interest only must be a factor. As really leaves little margin if house prices were to fall again. As far as your lender in concerned.

So you are paying the price of being on this basis.

How do you intend repaying the debt?

Although you'd like to fix, in the short term you need to address the issue of getting the mortgage onto a repayment basis. Even if was to mean extending the mortgage term.

There's unlikely to be an easy solution.

Snippa

Definitely try and get off interest only, if you can do this. Even if IRs don't go up in the near future - this year or next - they're going to go up at some point. They're currently at the lowest rate they've ever been, in the whole history of UK interest rates. That can't possibly last.

At least with a repayment mortgage, the capital is going down every month, so as you pay it off, the interest costs go down, and the capital repayments go up. With IR, you're paying less per month, but never bringing the capital down at all so paying interest on the entire amount for as long as you have the mortgage. That leaves you much more vunlerable to rate rises. At least with repayment 10 or 15 years down the line, IR rises won't hurt so much!

Interst only makes sense if it's just for a few years to see you through a temporary tought time, but not long term.

superphil007

Hi all,

Alliance & Leicester has lowered its SVR from 4.99% to 4.24% for new customers, the move followed court approval for the legal transfer of Alliance & Leicester to Santander UK on 28 May2010 bringing it in line with Santander’s SVR but has not adjusted the rate for existing customers. WHY???
I do know why it’s because they are ripping off existing A&L customers by .75% every month and they are getting away with it.
I have never missed or delay a mortgage payment since 2006, I am one of those thousands of British homeowner who has lost a significant percentage of equity in my property and is now stuck at the mercy of the banks for borrowing. I cannot even get an existing deal since we now stand in negative equity. What can I do?
I have recently wrote a complaint letter to Santander regarding this issue since I am one of those customers that was on a SVR of 4.99 with A&L and now feel somewhat ripped off by Santander regarding this. If you look at the Santander website all information regarding their existing SVR are 4.24%. This is false advertising and someone should do something about this.

I have received a reply from Santander saying that they will not alter the SVR on my mortgage; their reasoning is that there has been no change to the contractual arrangement that was originally agreed with me when I took the mortgage.
I just feel that they are ripping me off and I want to take it further with the Financial Ombudsman Services because somehow I feel that what they are doing is wrong.
Maybe if I get enough support from people, perhaps together we could do something about this.
Philippe
From South Wales

beecher2

superphil007 wrote: »

I cannot even get an existing deal since we now stand in negative equity. What can I do?

All you can do is overpay and get out of negative equity. go onto the debt free wanabee forums for help in budgeting.

DVardysShadow

superphil007 wrote: »

Hi all,

Alliance & Leicester has lowered its SVR from 4.99% to 4.24% for new customers, the move followed court approval for the legal transfer of Alliance & Leicester to Santander UK on 28 May2010 bringing it in line with Santander’s SVR but has not adjusted the rate for existing customers. WHY???
I do know why it’s because they are ripping off existing A&L customers by .75% every month and they are getting away with it.
I have never missed or delay a mortgage payment since 2006, I am one of those thousands of British homeowner who has lost a significant percentage of equity in my property and is now stuck at the mercy of the banks for borrowing. I cannot even get an existing deal since we now stand in negative equity. What can I do?
I have recently wrote a complaint letter to Santander regarding this issue since I am one of those customers that was on a SVR of 4.99 with A&L and now feel somewhat ripped off by Santander regarding this. If you look at the Santander website all information regarding their existing SVR are 4.24%. This is false advertising and someone should do something about this.

I have received a reply from Santander saying that they will not alter the SVR on my mortgage; their reasoning is that there has been no change to the contractual arrangement that was originally agreed with me when I took the mortgage.
I just feel that they are ripping me off and I want to take it further with the Financial Ombudsman Services because somehow I feel that what they are doing is wrong.
Maybe if I get enough support from people, perhaps together we could do something about this.
Philippe
From South Wales

Crossposted as separate thread https://forums.moneysavingexpert.com/discussion/comment/44108624#Comment_44108624