MSE News: 'Don't take mortgage SVR hikes lying down'

squeeks

I am really not sure what this article is trying to achieve.

A banking product offering a loan at a variable rate, which they can set to what every they like has gone up, which means it will be more expensive for people using the product. Okay, I can see people being unhappy at paying more. Nobody likes to pay more.

So, what is the answer?

Try to get SVR to be illegal, as it is too dangerous for banks to have discretionary powers to set the interest rates of a mortgage after an individual has bet the proverbial farm on it. If you do this what becomes of all the current SVR mortgage customers?

Alternatively would you have some sort of ombudsman who limits mortgage rate increases to say x percent per year based on the repayment amount. The headline interest rate is immaterial to some borrowers, as they only need to know they can afford the monthly amounts to keep their homes. They don't really care and are probably completely oblivious to how much debt is outstanding or what the debt costs them in the long run.

I can't see either option I've listed above coming in for existing borrowers. So I don't know what the original article is trying to rally against.

The SVR rate being changed isn't unreasonable, they haven't set it to 300% AER for example. The rate is higher than it used to be, and people are unhappy because they are now being charged more. If they don't like this, they do have options. They can move mortgage provider or product. Or you can repay the mortgage, sell the house etc.

A mortgage isn't any more compulsory than say using a credit card to buy your weekly food shop. You can choose to alternatively pay in cash or use an over draft facility (or any other payment method), instead of the credit card. You have choices on how you pay, but it seems you do ultimately have to pay somehow.

suburbanwifey

squeeks wrote: »

I am really not sure what this article is trying to achieve.

A banking product offering a loan at a variable rate, which they can set to what every they like has gone up, which means it will be more expensive for people using the product. Okay, I can see people being unhappy at paying more. Nobody likes to pay more.

So, what is the answer?

Try to get SVR to be illegal, as it is too dangerous for banks to have discretionary powers to set the interest rates of a mortgage after an individual has bet the proverbial farm on it. If you do this what becomes of all the current SVR mortgage customers?

Alternatively would you have some sort of ombudsman who limits mortgage rate increases to say x percent per year based on the repayment amount. The headline interest rate is immaterial to some borrowers, as they only need to know they can afford the monthly amounts to keep their homes. They don't really care and are probably completely oblivious to how much debt is outstanding or what the debt costs them in the long run.

I can't see either option I've listed above coming in for existing borrowers. So I don't know what the original article is trying to rally against.

The SVR rate being changed isn't unreasonable, they haven't set it to 300% AER for example. The rate is higher than it used to be, and people are unhappy because they are now being charged more. If they don't like this, they do have options. They can move mortgage provider or product. Or you can repay the mortgage, sell the house etc.

A mortgage isn't any more compulsory than say using a credit card to buy your weekly food shop. You can choose to alternatively pay in cash or use an over draft facility (or any other payment method), instead of the credit card. You have choices on how you pay, but it seems you do ultimately have to pay somehow.

Yes, either in higher mortgage costs or higher rental costs as I assume landlords will increase rentals if mortgages go up and cost them more, as we know all landlords get their mortgages paid via their tenants. Ultimately, if one is going to pay more either way, still better to stay in your own home and find a way to pay increased costs, because if you sell up to rent, your new landlord will eat away any profit you made on the sale and then stuff you for life on ever increasing rental costs. At least a mortgage is paid up one day, leaving you owning your own home, total control and the equity is yours and any family you leave it to when you die, renting - you pay landlords mortgage off and have to pay rent every month of your life until you die, leaving you asset-less and penny-less.

Absorb the cost of your mortgage, get a second job, third job, rent a room, whatever you do, find a way. The end result is always going to be that you are better in your own home than someone else's who if you don't pay what they ask, will kick you out.

ILW

Joe_Bloggs wrote: »

What is inflation today ? What was inflation then ? Where does the 5% correction factor come from.
J_B.

The 5% came from the graph posted. It was in reply to someone who stated that higher interest rates in the were mitigated by high inflation. This is obviously not the case.

shortchanged_2

suburbanwifey wrote: »

Yes, either in higher mortgage costs or higher rental costs as I assume landlords will increase rentals if mortgages go up and cost them more, as we know all landlords get their mortgages paid via their tenants.

It doesn't always work like this.

There will be a upper limit on the rent that people will be able to afford. It's naive to think that rents can just go up and up. The rental market will end up like the housing market eventually in that it will be a bubble that will pop.
You can only squeeze so much before it gets too much for people and there will start to be a raft of arrears etc.

This is the problem at the moment with the rental market in that many investors are now viewing the rental market as like the housing market of the previous decade in that rents can only go up and up. Meanwhile many people are forgetting that people are actually facing a squeeze on incomes so something has to give.

And also if people are unable to be able to afford their mortgage they are unlikely to be able to afford to rent much of a property either.

suburbanwifey

shortchanged wrote: »

also if people are unable to be able to afford their mortgage they are unlikely to be able to afford to rent much of a property either.

I agree! so it pays to try to stay in your own home, as rental costs are nowadays either as expensive or more expensive than a mortgage. In the past, renting was the poor man's way of life, now many professionals are forced to rent. Renting is no longer cheaper. So what happens when someone loses their home and they cannot afford to pay deposits, a months rent in advance (can run into thousands) and moving costs ... what happens when those that get repossessed cannot afford to rent?? That's what I am wondering ... rental prices are unsustainable if you ask me. No way would I pay more to rent someone else's house when its cheaper to buy your own. Madness.

shortchanged_2

suburbanwifey wrote: »

I agree! so it pays to try to stay in your own home, as rental costs are nowadays either as expensive or more expensive than a mortgage. In the past, renting was the poor man's way of life, now many professionals are forced to rent. Renting is no longer cheaper. So what happens when someone loses their home and they cannot afford to pay deposits, a months rent in advance (can run into thousands) and moving costs ... what happens when those that get repossessed cannot afford to rent?? That's what I am wondering ... rental prices are unsustainable if you ask me. No way would I pay more to rent someone else's house when its cheaper to buy your own. Madness.

But this whole scenario is the picture of an overpriced housing market. Basically people have paid far too much for property over the past decade and it's now all unravelling.

suburbanwifey

shortchanged wrote: »

But this whole scenario is the picture of an overpriced housing market. Basically people have paid far too much for property over the past decade and it's now all unravelling.

Correct! its all a mess, ownership, renting, BTL and interest only mortgages.

squeeks

suburbanwifey wrote: »

Yes, either in higher mortgage costs or higher rental costs as I assume landlords will increase rentals if mortgages go up and cost them more, as we know all landlords get their mortgages paid via their tenants.

I don't think all landlords buy their way into the business by using debt. The quickest way to ruin any business is though borrowing money.

The best, and probably the only good part of a mortgage is that one day it is paid off and you are mortgage free.

So I don't think that an increase in mortgage costs naturally translates into an increase in rental costs. The two are not directly related. I would probably argue that rental cost runs a lot closer to tenants ability to pay than mortgage products.

suburbanwifey

squeeks wrote: »

I don't think all landlords buy their way into the business by using debt. The quickest way to ruin any business is though borrowing money.

The best, and probably the only good part of a mortgage is that one day it is paid off and you are mortgage free.

So I don't think that an increase in mortgage costs naturally translates into an increase in rental costs. The two are not directly related. I would probably argue that rental cost runs a lot closer to tenants ability to pay than mortgage products.

Yeah, I think you are right. I hope so anyway for those that do rent or will need to if things get any worse.

Joe_Bloggs

ILW clarified that:-

The 5% came from the graph posted. It was in reply to someone who stated that higher interest rates in the were mitigated by high inflation. This is obviously not the case.

I thank you for your reply.

I have heard that some people buy bonds at interest rates that are below the current inflation rate are they crazy or was it the best deal they could make.


More generally some lenders reserve the right to charge whatever they can get away with on their SVR. If they charge too much then they either lose borrowers who can find a better deal or force them on to another deal less than the SVR with a fat fee.

There is an underclass of borrowers who can't move because :-
1) Loan to value has become too high ruling out current offers from existing and other lenders.
2) Changes in circumstances such as unemployment/ redundancy/ pregnancy
3) Trashed credit record, forgotten mobile phone contract etc..
4) Self certified when financial matters were negotiable or even fictional.
5)There are many others


If they charge too much they risk rising mortgage arrears and repossession costs that ruins their mortgage book. Those that can will move those that can't will be left behind leaving behind a concentrated mass of dodgy mortgage borrowers more likely to default.

J_B.