MSE News: Is the Government's 30-yr fixed mortgage call baloney?

Ronaldo_Mconaldo

opinions4u wrote: »

Why the hell 30 years?

If anything they should be encouraging shorter mortgage terms.

He's talking about fixing the interest rate for 30 years.

Pincher

Japan's interest rate must be near zero for 20 years by now.
I think they just went actual zero, if the news is to be believed.

If BOE just drop their rate to 0, so my tracker is even cheaper, and then they just copy Japan for twenty years, who needs a 5% 30 year fix?

biglugs

If the deal was that first time buyers could get 95% mortgages but only on a 30 year fix at say 5-6% then many FTBs would probably be more than happy with that deal. Yes it is good to always pay as little as possible, but if you can't get a mortgage in the first place then the discussion is academic.
There would be no problems with a 30 year fix as long as it was fully portable, because few people stay in one house that long, particularly FTBs who can't buy a family home these days.

kathie1101

I took out a 25 year mortgage about 8 years ago at 5.6% and I honestly think it was and is still right for me. I will always know exactly what my payments will be and that is the main thing for me - I would hate it to suddenly have to find an extra £50 or whatever each month on my mortgage. I guess I have been paying over the odds for the last few years, but I'm not bothered. Over 25 years I think at 5.6% it will probably pay off, but even if it doesn't - the peace of mind of it does.

Also mine is really flexible, it allows a lump sum overpayment each year (up to a set amount), you can move it with you if you move home - just costs £100 to do so, and during the term of the mortgage the penalty fees for repaying it off reduce - but there are certain periods that you can pay it off without any penalty at all - although these are quite restrictive.

Pincher

kathie1101 wrote: »

I took out a 25 year mortgage about 8 years ago at 5.6% and I honestly think it was and is still right for me.

If BOE is expected to stay high for a prolonged period, so the lender is haemoehraging money, they will try to cut you off one way or another.

Do come back and tell us what they try to do if we get hyper-inflation three years from now.

Simon_Webster

I am glad the article is provoking so much comment...

In advance there really is no right answer to the fix or not to fix question. Some here say that from their perspective 100% certainty trumps all other options - but at what price? A £100,000 loan fixed for 10 years at 6% costs £500 per month. A 3% variable rate costs £250. For many a £250 per month insurance policy is simply too expensive...

For those just starting out, the single most important issue is cost now. While that short term attitude is at the route of some of our current problems, for young professionals a cheap deal to get on the ladder now when they believe their income will be significantly higher in 5 years could well be the right answer for them.

I noticed one or two getting "sniffy" about "gambling" linked to house purchase. But everything in life is a gamble. You buy a used car, a used house or something new on the internet or make a proprosal of marriage you have no way of knowing in advance whether you have "bought" at the right price or whether you will be "supported" after your purchase etc etc.

Like it or not even crossing the road is a gamble. The trick is to try and make sure the odds are stacked in your favour.

opinions4u

Ronaldo_Mconaldo wrote: »

He's talking about fixing the interest rate for 30 years.

I appreciate that.

But by coming up with the magic number "30" there is an implication that this is automatically how long people should borrow over.

A bit like "25" has been seen as "normal" for many years.

I'm simply making the point that, if anything, we should be trying to reduce people's mortgage terms. Encourage them to borrow over shorter periods.

This proposal, at a headline level, fails to do this.

Stuart_W

Simon_Webster wrote: »

Some here say that from their perspective 100% certainty trumps all other options - but at what price? A £100,000 loan fixed for 10 years at 6% costs £500 per month. A 3% variable rate costs £250. For many a £250 per month insurance policy is simply too expensive...

And this is why I never get on with financial advisers. I do not accept the idea that the above example is a £250 per month "insurance policy". If my cooker explodes and destroys the house, my home insurance will pay up - that's an insurance policy. I'm pretty much hoping that such an event will not happen, but insurance is there just in case it does.

Your little example can give the impression that the fixed rate is twice as "expensive" as the variable rate. You quote the amount of interest charged after the first month. Actually, even if those rates did exist, of course it means nothing like this as a monthly cost. A £100,000 loan, fixed at 6% for 25 years, would cost £644 per month. A £100,000 loan, at a variable 3% for 25 years would cost £474 whilst rates are at 3%, with the possibility of going up or down at any stage. That "£250 per month" has already changed to £170 as it is. I hope with your figures you weren't suggesting an interest-only mortgage.

Simon_Webster wrote: »

For young professionals a cheap deal to get on the ladder now when they believe their income will be significantly higher in 5 years could well be the right answer for them.

It is this proliferation of credit based on projected growth of income - not just a projection of current income - that has caused the consumer credit quagmire so many find themselves in today. Too many people are not just committing to spending money that haven't yet got, but are presuming their pay will be significantly higher in the near future, based on pay rises and promotions that they haven't yet got. I do sympathise with those first time buyers who are faced with few alternatives. The reality is house prices are still too high and unaffordable because housing has become speculative investment rather than the means to a home.

The ability to overpay a mortgage is as equally as important as getting the right rate. Going back to that £100,000 mortgage fixed at 6% interest, overpaying £200 each and every month from day one knocks TEN WHOLE YEARS off the mortgage. Early payment fees don't apply to my fixed rate deal, Ronaldo. If they did, that would change the deal significantly.

My mortgage isn't a gamble. It isn't an insurance policy. It's a loan repayment, that I'm paying back as quickly as possible, knowing that the agreed monthly payment will not change unless I want it to. The financial world may crash or boom. I know where I am.

We'll just agree to disagree. You've got the whole financial advising industry behind your thoughts. I'm just out on my own.