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Rate rise threat for 3m home owners - Sunday Telegraph

drc
Posts: 2,057 Forumite
From the Sunday Telegraph;
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8097272/Rate-rise-threat-for-3m-home-owners.html
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8097272/Rate-rise-threat-for-3m-home-owners.html
Rate rise threat for 3m home owners
Almost three million homeowners would struggle to pay their mortgage if interest rates rose by just 2 percentage points, according to new industry figures seen by The Sunday Telegraph. This equates to more than one in three (37pc) of all mortgage holders.
By Emma Simon
Published: 6:00AM GMT 31 Oct 2010Rate rise threat for 3m home owners Photo: Howard McWilliam
Even if rates rose by less than 2 points, an estimated 1.6 million mortgages would be deemed "unaffordable", according to guidelines set out by the Financial Services Authority.
There are growing concerns that interest rates might rise sooner than previously predicted, given last week's better than expected growth figures. This would cause further misery for many struggling families, already facing rising taxes, higher-than-expected inflation and the prospect of widespread job losses, particularly in the public sector.
According to figures from the Council of Mortgage Lenders (CML), if mortgage rates rose by 2 percentage points from their current rate, about 2.9 million homeowners would have home loans that breached the regulator's affordability guidelines. The usual advice for those whose finances are this precarious is to take out a fixed-rate mortgage: it may cost more in the short term, but should safeguard their income against future rate shocks. However, a significant proportion of these borrowers are unable to afford or gain access to a fixed-rate deal.
Falling house prices and more stringent lending criteria have left tens of thousands of homeowners stuck on their current deal, unable to remortgage elsewhere. For those lucky enough to have a mortgage with C & G or Nationwide, for example, this may not be too bad: both have a standard variable rate (SVR) of just 2.5pc. But the average is significantly higher at 4.75pc, with some lenders, such as Kent Reliance Building Society, charging 6.08pc.
One of the main problems is that people don't have enough equity in their property to move. David Hollingworth of London & Country mortgage brokers said lenders offered their best rates only to customers who have at least 25pc equity in their home, and there are almost no deals available to those with less than 10pc equity.
According to the CML, nearly half a million mortgages for more than 90pc of the property value have been granted since the start of 2007. Given that house prices are still some way off their August 2007 peak, and are still falling, according to figures from Nationwide last week, it seems fair to assume that many of these homeowners will still have less than 10pc equity in their home. The weakened housing market will also have dragged some homeowners who had more than 10pc equity when they arranged their mortgage into this net.
It isn't just those with high-value loans who face difficulties. Figures published by the FSA last year indicated that a quarter of all new mortgages granted were on an interest-only basis; in addition, one in four mortgage customers borrowed more than three-and-a-half times their salary. This figure was even higher for first-time buyers, 38pc of whom took out a mortgage on this higher income multiple. In both cases, homeowners would struggle to remortgage on these terms.
In addition, the FSA reckons that 45pc of all mortgages – that's 5.4 million home loans – were granted without the lender verifying the customer's income.
Melanie Bien of Private Finance, another mortgage broker, said: "Unless these homeowners can now prove they have sufficient income to service this loan, they may well find themselves unable to remortgage onto better terms."
Remember, proving income is likely to mean finding at least six months of payroll slips, or for those who are self-employed up to three years' audited accounts. And bonus payments, a future inheritance or simply selling the house are unlikely to be accepted as repayment vehicles for interest-only loans.
Mr Hollingworth said: "There are thousands of people who are effectively stuck on their lender's standard variable rate (SVR). While interest rates remain low this may not be too much of a problem, as fixed-rate deals are priced at a premium." But he urged borrowers to "stress-test their finances" and not get lulled into a false sense of security by the benign interest-rate environment. "Interest rates will rise, the only question is when and by how much," he added.
Homeowners on lower SVRs have benefited from reduced monthly mortgage payments; they should use some of this money to help protect themselves against future rate rises, he said.
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Comments
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Many/most of them will have originally signed up to their mortgage at a higher rate than it is now .... and they know it will go up again. This isn't "news" to those people, it is always a question of "when", not "if".
As a saver, who has lost interest income for 3 years, I can't really have sympathy. I originally signed up for an interest rate too - and it dropped.
How about "3 million savers rejoice as finally they'll be able to afford some dripping on their bread"?
As for the liars ... well, hoisted by their own .... weren't they.0 -
well what it actually says, is that under the new proposed guidelines, then more mortgages will be deemed 'un-affordable' even though lots of those very same people were used to pay much more per month before the intererst rates collapsed.
the real effect will be to stop FTB from getting a mortgage even if they can well afford the repayments and to stop existing people from moving even if their monthly payments don't change.
good thinking somewhere..0 -
Another statement of the b*l*e*e*d*i*n*g obvious for the Telegraph.
It took the media at least 6 months to understand that the "Credit Crunch" (as they called it) did not mean that homeowners cannot affort their repayments any more. I remember the BBC in particular predicting lots of people being thrown out of the house, unable to afford their mortgage.
Given that the more responsible press do not tend to "lie" all the time, I can only put this down to a severe lack of intellect in their recruitment over the years. Probably down to loads of 28-year-old "Politics" graduates from third rate 'Universities' who think that "Condominium" means a chemist's shop!0 -
good thinking somewhere..
Sounds like a receipe for a massive crash.PasturesNew wrote: »As a saver, who has lost interest income for 3 years, I can't really have sympathy. I originally signed up for an interest rate too - and it dropped.
The greater good PN... the 500 year low interest rates have especially delighted the baby-boomers who dislike the prospect of losing more than a few pennies of value fromt their homes... after decades of rampant HPI. Especially the generation of Merv's age.
Hey baby-boomers... PN is a bit upset about QE running in to the hundreds of billions and ultra low interest rates supporting house prices in the market...0 -
PasturesNew wrote: »Many/most of them will have originally signed up to their mortgage at a higher rate than it is now .... and they know it will go up again. This isn't "news" to those people, it is always a question of "when", not "if".
As a saver, who has lost interest income for 3 years, I can't really have sympathy. I originally signed up for an interest rate too - and it dropped.
How about "3 million savers rejoice as finally they'll be able to afford some dripping on their bread"?
As for the liars ... well, hoisted by their own .... weren't they.
The trouble is, many people signed up to mortgages earning boom-time economy money, guaranteed overtime every week, bonuses, good commissions etc. The biggest problem for many in harder economic times isn't that they don't work it's that work doesn't pay what it did.0 -
I hope they don't go up yet, but it is only a matter of time. Those of us with any sense have been busy paying down everything to save for a rainy day, and employed mortgage-payers have had a nice little respite from economic reality. It can't and won't last forever. The main argument against is that low interest rates have not sparked a wild spending boom, and a rise could put recovery at risk.Been away for a while.0
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Base rates rise, the banks margins on mortgages fall.'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0
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Surely the banks margin is a balancing act and is now higher than normal and as it would not make for good business to force your customers to default we may well see a lowing of margins.0
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The trouble is, many people signed up to mortgages earning boom-time economy money, guaranteed overtime every week, bonuses, good commissions etc. The biggest problem for many in harder economic times isn't that they don't work it's that work doesn't pay what it did.
- interest. Gone now.
- get a job. No chance now.0
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