Mortgage advice

chris180682

Hi,
Just after a bit of advice, I know people aren't psychic but just wanting a bit of opinion on mortgages. We have seen a house and know how much we can get it for and we can afford it on the 2 year 90% fixed deal at 5.45% we have seen (seems to be best one out there at this rate/length) even the two seperate whole of market brokers couldn't find anything better. The issue I'm wondering about is we can't afford much more per month on repayments than this and obviously the interest rates are only going to go up so how much of an effect is it likely to have on fixed rate deals in two years time when the interest rates have probably shot up? Our current mortgage was a 100% one at 5.8% and I presume the base rate was much higher back then but 5.8% doesn't seem that much different to the 90% deals now.
Thnaks in advance.

CloudCuckooLand

The current large gap between the base rate and the deal you have been quoted is helping the banks to "recapitalise".

One hopes that they will do the right thing when they are restored to profitability, and ease the size of that gap.

When that might be, whether they will do the right thing, whether your house will have the same amount of equity to qualify for a 90% deal for it to be relevant in two years, are all unknowns.

I'd go for a longer deal, personally. Or try to get into 85% territory. Or both, if you can.

chris180682

CloudCuckooLand wrote: »

The current large gap between the base rate and the deal you have been quoted is helping the banks to "recapitalise".

One hopes that they will do the right thing when they are restored to profitability, and ease the size of that gap.

When that might be, whether they will do the right thing, whether your house will have the same amount of equity to qualify for a 90% deal for it to be relevant in two years, are all unknowns.

I'd go for a longer deal, personally. Or try to get into 85% territory. Or both, if you can.

Cheers. At present I don't think we can afford the longer deals and we can't get to 85% so it's a case of weighing up the risk or rethinking the type of house we are looking at I think. This particular house is worth the money at present as other houses on the same estate have gone for 10-17k more but obviously the "value" could change.

chris180682

Sorry, just to add...So is it quite unlikely the banks would all significantly up the rates of their mortgage products do you think? As you can tell I haven't got a great understanding of it all but I'm learning. Logically if all the mortgage rates suddenly shot up then millions of people wouldn't be able to afford their mortgages anymore so am I right in thinking they have kept the mortgage/loan rates fairly high while the base rate has been so low so that when the base rate goes back up it may not affect mortgage rates too much?

CloudCuckooLand

As one of their income/profit streams has been shut down, the high-risk stuff (CDOs etc) that caused it all in the first place, they may decide to squeeze a higher margin out of us on ordinary mortgages, when the Base Rate returns to normal.

i.e. if in 2006 at 4% base rate, mortgages were 6%; in 2013 with a base rate of only 3% we might see 6% potentially (average, dependant on LTV etc)

They may come up with other reasons, too - they have bonuses to fund, after all...

Or they may not. They may do the right thing.

I wouldn't hold my breath for the latter.

Wh05apk

With the massive margins currently being applied, I would go for as short a term as possible on the basis that in 2 years time hopefully the margins will be reducing.

chris180682

Wh05apk wrote: »

With the massive margins currently being applied, I would go for as short a term as possible on the basis that in 2 years time hopefully the margins will be reducing.

See, I think with my lack of understanding I think I was looking at this in the simple terms of; base rate is very low so current mortgage rates were as low as they are going to get but from what people are saying this is not neccessarilt the case then and it's more likely in theory that they should actually stay about the same or go down as the current margain between base rate and loan rate is unusually big, is that correct? Don't get me wrong I know nobody can say for sure what will happen but I've learned something already!

Wh05apk

chris180682 wrote: »

See, I think with my lack of understanding I think I was looking at this in the simple terms of; base rate is very low so current mortgage rates were as low as they are going to get but from what people are saying this is not neccessarilt the case then and it's more likely in theory that they should actually stay about the same or go down as the current margain between base rate and loan rate is unusually big, is that correct? Don't get me wrong I know nobody can say for sure what will happen but I've learned something already!

I cant see how rates can be 4%+ above base if/when base gets back to 4/5% that will make them close to 10%.

Thrugelmir

Wh05apk wrote: »

With the massive margins currently being applied, I would go for as short a term as possible on the basis that in 2 years time hopefully the margins will be reducing.

Massive margins?

A higher base rate will merely restore the relationship between depositors and borrowers.

chris180682

Thrugelmir wrote: »

Massive margins?

A higher base rate will merely restore the relationship between depositors and borrowers.

Excuse my ignorance but what do you mean by this?
Cheers

Thrugelmir

chris180682 wrote: »

Excuse my ignorance but what do you mean by this?
Cheers

A very simple explanation. I can deposit money into a 4 year fixed rate ISA with the Halifax and earn interest at a rate of 4.25%. Halifax to make a return on this money, could use it to fund a 3 year fixed mortgage of 6.34%.

The Halifax are offering 4.25% as a way of enticing people to lend the bank their money. As there's competition for depositors funds.

The myth that banks fund mortgages at .5% by borrowing from the BOE is far removed from the truth.