The time-bomb ticking under Britain's house prices

mystic_trev

Last week, one dull-looking number emerged that might have a profound effect on UK monetary policy. It came from Legal & General and it is this: around 90% of all mortgages held in the UK come with a variable rather than a fixed rate of interest. That's up from 60% in 2007.

You can understand why this might be. The best five-year fixed-rate mortgages on the market cost 4.5%. But the best variable rate mortgages come in at as little as 2%. On a 20-year repayment mortgage of £150,000, that makes a difference of £200 a month.

http://www.moneyweek.com/investments/property/uk/time-bomb-ticking-under-britains-house-prices-11011

DervProf

RenovationMan wrote: »

Why is it a ticking time-bomb? Clearly a lot of people are happy to stick with SVR rates while they are so low. As soon as rates go up there will be a mad scramble to secure fixed rates.

Why does the media have to make such a drama out of nothing?

I'm sure the banks will be offering some fantastic fixed rates once base rates go up. They'll be all generous and that........ "ooh, it looks like a lot of our customers are wanting to switch to a fixed rate, because base rates are increasing. Let's be generous and offer them some really great deals".

That's what borrowers must be hoping for, anyway.

StevieJ

RenovationMan wrote: »

Why is it a ticking time-bomb? Clearly a lot of people are happy to stick with SVR rates while they are so low. As soon as rates go up there will be a mad scramble to secure fixed rates.

Why does the media have to make such a drama out of nothing?

It was from Moneyweek, nuff said

wymondham

Assuming 90% of mortgages are now variable, then this throws up an interesting problem. In the past rate rises have had a limited immediate impact due to the number of those fixing - only as people come off their fix does the change have an impact on them. With 90% on variable, when rate rises come, many more people will be impacted, and impacted immediately. This will give almost a live coverage of the market as more people pay more rather than the staggered changes of yesteryear...

des_cartes

wymondham wrote: »

Assuming 90% of mortgages are now variable, then this throws up an interesting problem. In the past rate rises have had a limited immediate impact due to the number of those fixing - only as people come off their fix does the change have an impact on them. With 90% on variable, when rate rises come, many more people will be impacted, and impacted immediately. This will give almost a live coverage of the market as more people pay more rather than the staggered changes of yesteryear...

With the flood of properties being put on the market it would seem that significant numbers have woken up to the fact that owning a depreciating asset that is going to cost more in repayments very soon is not very clever - especially when the number of punters wanting to take that asset off your hands is falling as well.

Graham_Devon

RenovationMan wrote: »

Why is it a ticking time-bomb? Clearly a lot of people are happy to stick with SVR rates while they are so low. As soon as rates go up there will be a mad scramble to secure fixed rates.

Why does the media have to make such a drama out of nothing?

A bit like when house prices dropped, mortgages dried up.

Fixes won't be around at great deals when rates go up.

chucknorris

RenovationMan wrote: »

Even though we now have fewer mortgage providers than before the recession, I cant imagine that the market is so uncompetitive that they can afford to withdraw their fixed rates, just to spite borrowers for having the audacity to remain on SVR rates during a period of low interest rates.

As I said in the thread about what is a bear and bull, I have no real interest in house prices but I will contribute a logical post. To me, it's just not logical for bears to assume that nearly all of the people on SVR rates are there because they have 90% to 120% mortgages and cannot secure a fix for love nor money. The reality is that many people have been enjoying lower monthly mortgage payments and are in no rush to increase those monthly payments by arranging a fix, that is until rates start to rise.

It's been a great 2 years of low rates and a bit more time on low rates still to come too

Graham_Devon

RenovationMan wrote: »

Even though we now have fewer mortgage providers than before the recession, I cant imagine that the market is so uncompetitive that they can afford to withdraw their fixed rates, just to spite borrowers for having the audacity to remain on SVR rates during a period of low interest rates.

I'm not saying they will withdraw them. I'm saying they will go up, as they gradually have been.

But it will probably be harder to get the better fix, as it's been harder to get the cheaper mortgage. This is very much accepted by most economists. A lot are telling people to fix now, while they can at the rates offered.

StevieJ

RenovationMan wrote: »

As I said in the thread about what is a bear and bull, I have no real interest in house prices but I will contribute a logical post. To me, it's just not logical for bears to assume that nearly all of the people on SVR rates are there because they have 90% to 120% mortgages and cannot secure a fix for love nor money. The reality is that many people have been enjoying lower monthly mortgage payments and are in no rush to increase those monthly payments by arranging a fix, that is until rates start to rise.

They also weirdly assume that people on low interest rates are going to take a battering when rates go up even though nearly all those mortgage holders had mortgages when BR was at 5% and above.
Its 'make hay while the sun shines' for most.

Graham_Devon

StevieJ wrote: »

They also weirdly assume that people on low interest rates are going to take a battering when rates go up even though nearly all those mortgage holders had mortgages when BR was at 5% and above.
Its 'make hay while the sun shines' for most.

No. False.

Many of those people you talk about, and I, at least, am talking about the thousands who bought recently, say within the last 5-6 years, will have been fixed at a certain rate.

Many of those now, due to negative equity, wil not be able to fix.

Take a look at myself. Was on a 4.5% fix. Then went to 7.75%. Now dropped to 3.5% (getting some money back now apparently).

I won't be able to fix again. They will require that I have a LTV rate, but I don't. The house has fallen in value. I will have to stay on SVR.

Many thousands, 10's of thousands, fell off fixes when rates were low. Many thousands won't be able to fix again when interest rates go up and will be left on SVR.

It's ok saying they paid them in 2007, but many were likely paying fixed rates. Many won't be able to do that now.

It's not that hard to understand. It's not as simple as "paid in 2007, therefore can pay now". One glance at the mortgage statistics shows more people on SVR's now than at any time int he last decade. It also shows less and less people remortgaging.

The point is, like anything, once rates go up, the cheaper products will no longer be there. You can try and twist the situation into some vague "bears think this" slur....but seriously, look at the figures. Tell me if what I am saying, is not true. You won't be able to, so a slur is easier, I guess.

Cleaver

DervProf wrote: »

I'm sure the banks will be offering some fantastic fixed rates once base rates go up. They'll be all generous and that........ "ooh, it looks like a lot of our customers are wanting to switch to a fixed rate, because base rates are increasing. Let's be generous and offer them some really great deals".

That's what borrowers must be hoping for, anyway.

It's up to people to make their own decisions. We'd been on variable / SVR (call it what you like) for a couple of years up until very recently, purely because it represented great value and we could overpay. With regard to the OP, the idea that 90% of people being on SVR is a 'timebomb' is laughable - people are on variable rates because they are really cheap at the moment. As with any large group of people, a certain minority of this 90% will be f*cked when rates go up, but most will be happy to move to a fix or stay on variable as suits their objectives. It's not a 'timebomb'.

We then decided a couple of months ago that we wanted some stability, with the option to still overpay something, so we went for a 3.99% five year fixed rate product until late 2015, which we can overpay 10% of capital per year.

In terms of the bigger picture, if the base rate moves up to 2%, 3% or 4% over the next few years then you have to assume a few things:

1) The economy is presumably improving, hence the feeling that rates can go up. This will help people to pay their mortgages
2) Most people were able to afford their mortgages at 5%, 6% etc. a few years ago, so you must have to presume that most people will be able to when they go back to these rates. We've been through a recession, so I presume less people will be able to as they've been dumb through the low rate period and are spending their extra money, but I still think most will be fine.
3) Like in any market, things won't happen suddenly. When base rates rise it will be 0.25% or 0.5%, so people will have an opportunity to get fixed rate mortgages at 4%, or 5% or 6% for two to five year periods. They won't all suddenly go.
4) There will be some 'great deals'. In a market place there will be some lenders who want business and will offer good deals to people. I personally thought our five year fix at under 4% was a great deal for us.