Mortgage advice

chris180682

Thrugelmir wrote: »

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.

I think I see what you're saying. So based on this what would you predict would happen to mortgage rates in the next couple of years when the base rate goes up, i.e at the end of the 2 year fixed rate of 5.45%?

Thrugelmir

Using my crystal ball to look into the future. If BOE base was to rise to say 3.5%. Then I would expect the main lenders to set mortgage rates at around 5.5% to 7.0%. Depending on factors such as LTV.

Banks by 2018 will need to improve their capital reserves to comply with regulatory requirements under Basle 3. The net effect is that banks will have to make more profit out of lending less. So the low base tracker rates of recent years will never be seen again.

The current disparity in mortgage rates is due in part to the fact that some existing mortgage lending is losing lenders money. So new lending is having to compensate for some of the old.

Burridge60

are you only worried about rates for the next two years. Surely you realise the BoE will have raised rates during that time!

chris180682

Burridge60 wrote: »

are you only worried about rates for the next two years. Surely you realise the BoE will have raised rates during that time!

No Im concerned at what mortgage rates might have increased to after the two years as the OP explains. Obviously i realise the base rate will be going up as stated earlier.

Burridge60

Swap Rates on which fixed rates are based seem very similar to what were on offer before the credit crunch when BoE was 5.50% or even 5.75%.

So as other have hinted who is making their profit out of the difference at this time of austerity.

What no one can count on is the expectation for interest rates viewed from the interest rate bottom going up likely to be the same as we experienced at the top before they came down? Or in plain language are the banks going to carry on ripping everyone off with their extra premiums above the bank rate?

I hope this makes sense!

chris180682

Yes i think i get it, thanks. So when you say the BoE base rate was around 5.5% and 5.75% and the mortgage rates were similar to now does that mean these mortgages were at the same sort of fixed rates as the actual BoE rate? I always presumed mortgage rates were quite a bit above whatever the BoE rate was at the time? As you can tell i dont know much about all this!

Thrugelmir

Burridge60 wrote: »

Swap Rates on which fixed rates are based seem very similar to what were on offer before the credit crunch when BoE was 5.50% or even 5.75%.

So as other have hinted who is making their profit out of the difference at this time of austerity.

HSBC funds for example itself from its Asian operations. Wholesale money markets are global. So the profit is going East.

When RBS crashed in 2008, it was down to wholesale money being pulled out from the bank in its Far Eastern operations. Due to concerns over its solvency. RBS literally ran out of liquidity. Thats why the Treasury had to step in. Think back to NR though on a global stage.

chris180682

I think the general opinion seems to be the rates may not change too much from what i've read on here and the money sites but we now have to weigh up whether to take that risk or not. As i said we couldn't afford to pay much more at all after the two years are up so if we cant get the same rate of 5.45 or better we could struggle.

Thrugelmir

chris180682 wrote: »

I think the general opinion seems to be the rates may not change too much from what i've read on here and the money sites but we now have to weigh up whether to take that risk or not. As i said we couldn't afford to pay much more at all after the two years are up so if we cant get the same rate of 5.45 or better we could struggle.

There maybe you need to consider how much you borrow. Pay down some more of your existing mortgage first. While watching how events unfold.

Wh05apk

chris180682 wrote: »

As i said we couldn't afford to pay much more at all after the two years are up so if we cant get the same rate of 5.45 or better we could struggle.

I think if that is the case, then maybe you should consider a longer term fixed rate, it will cost you more now, but there would not be the risk that in 2 years time you could struggle and lose your house!