What low interest rates? Home loan costs rise as euro crisis sees banks hike mortgage

geneer

http://www.dailymail.co.uk/money/mortgageshome/article-2064902/Home-loan-costs-soar-euro-crisis-sees-banks-hike-mortgage-rates.html

Homeowners are facing a toxic combination of spiralling mortgage rates and plunging prices as the eurozone crisis grips the UK.

Banks are hiking the price of home loans as they are forced to pass on increases in the cost of money they use to fund deals.

In some cases, the total cost of a three-year deal has risen by almost £1,300 in the past week.


As mortgage rates rise, sellers are forced to slash prices

Experts fear rates will increase further with some banks potentially hiking the standard variable rates (SVR), currently paid by about four million homeowners.
The hike in mortgage rates may come as a surprise, as the base rate is not expected to increase for at least a year and a half.

As well as this, sellers are having to slash prices. Figures from estate agency Rightmove showed every region in the UK saw prices fall in October — the first time this has happened in three years.

Average asking prices dropped 3.1 per cent from October 9 to November 12, or £7,528 — so the average asking price is £232,144.
Independent housing economist Henry Pryor says: ‘The housing market is seizing up, with relatively few people actually buying or selling.

‘Consumers are very nervous about unemployment and the struggling economy, which means they don’t want to make big financial decisions.’


A plan to help first-time buyers
This week, the Government unveiled a series of measures to try to unblock the frozen housing market.

It plans to underwrite thousands of mortgages for new-build properties, allowing buyers to put down a 5 per cent deposit. It also earmarked £400 million to help build new homes. But these measures are likely to have little impact for some time — and in the meantime the housing market threatens to grind to a standstill.

The soaring cost of funding mortgages has forced Halifax, Woolwich and Santander to recently increase their tracker and fixed-rate deals.

Woolwich, part of Barclays, increased its three-year fixed-rate for those with a 10 per cent deposit by 0.4 percentage points to 5.39 per cent. This would add £1,296 to the cost over three years for someone borrowing a typical £150,000.

ING Direct raised its discounted variable rate from 2.25 per cent to 2.5 per cent for someone with a deposit of 40 per cent. The means repayments of £673 a month, increase by £19 per month.

Halifax withdrew its tracker rate of 2.89 per cent and replaced it with one at 2.99 per cent, meaning repayments are now £8 a month higher at £711.

Santander has also increased its tracker rates by 0.24  percentage points and its fixed-rates by 0.15  percentage points.


And standard variable rates have been increased

Meanwhile, a number of smaller players have taken the unusual decision to increase their SVR. Handelsbanken, a Swedish bank with 100 UK branches, increased its SVR from 4.5 per cent to 4.75 per cent.

Bank of Scotland and TMB, both part of state-backed Lloyds Banking Group, increased their SVRs from 4.84 per cent to 4.95 per cent. The money banks lend to borrowers for mortgages comes from a mixture of deposits held in savings accounts and borrowing from other banks on the investment markets.

Libor, the rate at which banks lend to each other and which typically sets the cost of tracker mortgages, has hit its highest level for two years.

This is because many banks have exposure to European banks’ debt and have become worried about lending to each other.

Meanwhile, swap rates, which typically set the cost of fixed rates, have also crept up /SIZE][URL="http://www.thisismoney.co.uk/interest-rates"][COLOR=#003580]see a history of swap rates[/COLOR][/URL][SIZE=2. This higher cost for banks of borrowing money is inevitably being passed on to their customers.

The average two-year tracker mortgage rose to 3.58 per cent last month from 3.39 per cent in September — its highest level since June 2010, according to analyst Moneyfacts.

This makes new mortgages around £15 a month more expensive than in September.

Meanwhile, the average two-year, fixed-rate mortgage for those with a 40 per cent deposit rose from 3.61 per cent in September to 3.91 per cent in October, adding £24 a month.

However, some experts fear that the rising cost of inter-bank lending means some banks or building societies may increase their SVRs sooner rather than later.

Around 40 per cent of homeowners are currently sitting on their lender’s SVR — some of which do not have enough equity to move elsewhere.

David Hollingsworth, of broker London & Country, says: ‘Banks can increase their SVRs anytime they like, and some may be forced to do so if their cost of borrowing gets much higher.’

ILW

Suppose it might get to a point where banks have to bump up savings rates to attract deposits.

MacMickster

This will only lead to further stagnation in the housing market. Those with current mortgages are generally benefitting from low interest rates making their loans affordable. If they were to move then their new mortgage would be offered at less attractive rates, so they will choose to stay put.

This will only drive transaction levels down but not prices. It would need a big jump in the base rate for that to happen.

System

Who's changed their SVR lately? Not seen any news about that.

Really2

Mine still seems to be stuck at 0.99% and the more bad news that comes out, the ever more likely it is going too stay there.

wotsthat

With apologies in advance to Graham_Devon I'd like to present some anecdotal evidence. It might be a sign of my desperation and, of course, I might just be making this up but I've seen upward pressure on 3 year fixed rates.

I've just accepted a 3 year fix at 3.69% with no fee. Got it just in time because today the rate is 3.59% with a £995 fee.

gailey_2

Can I just ask a few maybe silly questions, not got a mortgage so not up on it.

If banks rely on savings deposits and borrowing to fund their mortgages
and less people save due to low interest rates
and borrowing between banks libor becomes more expensive

Then wont it sort of mean bank of england effectivly losing what little control it has over the economy.

At moment governements pushing with austerity
bank of england providing a stimulus with low interest rates which helps a few
also qe i suspect is only helping the banks not the general economy.

even with the governemnts new scheme of underwriting.

I think houseprices still too high
but think cost of mortgages might be too high despite low interest rates if rates offered are so much higher than the base rate then surly the low base rate becomes irrelevent from a house buyer /homeowners point of veiw?

those who save getting crap interest rates as its pushed up inflation yet wages havent risen to match.
Those who have other consumer debts paying really high rates on cards/loans,overdraft ect so low interest rates pointless.

surly its time now the bank of england gradually increased rates?

Better to be gradual then sudden hike which they may have to do if we have another credit crunch.

Feel they running out of ammunition or big bakuza as they like to call it!

Flight2quality

Best fix now, at least you can sleep well for the term of the fix. But at the end of the term what will be average incomes and how much will house prices have fallen? Maybe wont sleep all that well after all,and this is before the base rate goes back up to more normal levels.

wotsthat

Flight2quality wrote: »

Best fix now, at least you can sleep well for the term of the fix. But at the end of the term what will be average incomes and how much will house prices have fallen? Maybe wont sleep all that well after all,and this is before the base rate goes back up to more normal levels.

You're painting a picture of a population scared into inactivity because they don't know what average income will be at the end of a fix or what interest rates will be available. You know that life's not really like that don't you?

People just get on with life and paying off the mortgage. End of fixed rate? No problem; get another.

You see in normal life most don't take big gambles that would leave them at the mercy of an interest rate rate rise. I'd bet you are bricking it more about the economy turning round than most will be concerned about it going the other way.

I wouldn't take a long term bet against the ability of people to successfully find ways to improve the circumstances of them and their families.

ILW

wotsthat wrote: »

You're painting a picture of a population scared into inactivity because they don't know what average income will be at the end of a fix or what interest rates will be available. You know that life's not really like that don't you?

People just get on with life and paying off the mortgage. End of fixed rate? No problem; get another.

You see in normal life most don't take big gambles that would leave them at the mercy of an interest rate rate rise. I'd bet you are bricking it more about the economy turning round than most will be concerned about it going the other way.

I wouldn't take a long term bet against the ability of people to successfully find ways to improve the circumstances of them and their families.

Fair point, but many did lose their home when rates went up in the early nineties.

Going4TheDream

wotsthat wrote: »

Y
People just get on with life and paying off the mortgage. End of fixed rate? No problem; get another.

I think that is fine if you have enough equity to get the best fix?

I would imagine being stuck on an SVR in a situation where rates could/may rise quickly in succession, as has happened in the past, makes life very hard for some to budget from month to month?