MSE News: Homeowners hit by Santander mortgage rise

vacheron

Good point. So looking at the column that says "mortgage balance" I believe they have worked it out as follows:

Interest only would result in paying interest on 50K every month for the next 15 years as the capital, and therefore the monthly interest amount will never reduce.

On a repayment mortgage however, the interest element payable each month will be slowly be reducing over the 15 years, however, just like a new mortgage, they have averaged the total payable interest over the 15 years, which is where the lower figure comes from.

vacheron

Doing the calcs:

repayment
50K over 15 years @ 4.24%, = £375.89pm (total interest payable: £19.921)
50K over 15 years @ 4.74%, = £388.56pm (total interest payable: £22.551)
difference by my reckoning = £12.67

interest only
50K @ 4.24%, = £176.66pm
50K @ 4.74% = £197.50pm
difference by my reckoning=£20.83

matchmade

These SVRs are pretty opaque things: what's to stop Santander or any other SVR-using bank from increasing the rate to 5.75% or 6.75%? It's easy to say that customers will just switch to another product, but with the mortgage famine, extemely strict lending criteria and the collapse in house prices meaning people have very poor LTVs or even negative equity, many people will be trapped with Santander and just have to pay up.

In other words, where are the FSA controls on these SVR rates, and the protection for the consumer from being ripped off by arbitrary changes? At least you know where you are with rates set as a percentage above base rate, but SVRs seem like a throwback to the 1970s and earlier, when mortgage and endowment providers liked to keep everything murky and it was very difficult to see what charges you were paying or how the interest rate was calculated.

dunstonh

These SVRs are pretty opaque things: what's to stop Santander or any other SVR-using bank from increasing the rate to 5.75% or 6.75%?

Nothing. Just as any retailer in the country can retail products at a price it wishes.

In other words, where are the FSA controls on these SVR rates,

Why should the FSA control it?

protection for the consumer from being ripped off by arbitrary changes?

Yay, another day, another rip-off accusation. Typical MSE poster.

At least you know where you are with rates set as a percentage above base rate, but SVRs seem like a throwback to the 1970s and earlier, when mortgage and endowment providers liked to keep everything murky and it was very difficult to see what charges you were paying or how the interest rate was calculated.

SVRs are heavily influenced by supply of money from other sources, such as deposits and external financing. As such, putting a cap or restriction on it would restrict borrowing even further.

tifo

dunstonh wrote: »

Nothing. Just as any retailer in the country can retail products at a price it wishes.

Yes, but banks are not allowed to go 'bust' like any retailer. Maybe they don't need the taxpayer bailout if they're making so much from higher interest rates on everything.

Then again it's only small/medium retailers that are allowed to fail. Others get govt 'help' in subsidies. Maybe because they use their influence with the number of jobs that will be lost if they are allowed to 'fail'.

jimjames

Credit-Crunched wrote: »

What is your next story Helen

"Halifax 2 year fixed rate mortgage has kept payments fixed for 2 years"

These headlines seem to have a great tendency to overstate numbers. An increase of 0.5% in the rate can hardly be counted as soaring any more than claims of a share price drop of 1% being a "stock market slump" can be justified.

Dramatic words make headlines but generally don't have any basis in reality.

Thrugelmir

tifo wrote: »

Yes, but banks are not allowed to go 'bust' like any retailer.

Hence the changes being introduced and the proposed changes. Since 2008 banking has changed and will continue to do so for some time.

squeeks

matchmade wrote: »

In other words, where are the FSA controls on these SVR rates, and the protection for the consumer from being ripped off by arbitrary changes? At least you know where you are with rates set as a percentage above base rate, but SVRs seem like a throwback to the 1970s and earlier, when mortgage and endowment providers liked to keep everything murky and it was very difficult to see what charges you were paying or how the interest rate was calculated.

The base rate is even more arbitrary than a banks SVR. With a bank SVR at least you can move to another provider. If the base rate 'jumped' to 10% there isn't a whole lot you can do about it short of lobbying your MP or organising a protest. If all products were pegged to the base rate, you really would be screwed as you would have no choice.