House Crash

kingkano

Generali wrote: »

I really don't understand why people in the UK don't fix their mortgages for 25 years.

I remember the sob stories in the Sunday supplements from people that fixed at 8% when rates were 5%, but better that than having to pay 15%! I maintain that if you have a long term fixed rate, good insurance and a little bit in savings then you can just about guarantee that the only way you'll lose your house is if you really mess things up!

Mostly down to the penalty fees and associated stuff. Its a nice idea, and I'm certainly hoping to fix for 15yrs when I move shortly. But in reality how many people stay in the 1 house for this long? You go thru 3 or 4 houses before getting there.... each time you change you would have to hold your breath that your current co. give you the cash (and it would probably be on a seperate deal etc). Or you pay some whacking great 5% fee or something to get out and start a new fix.

I agree they are a great idea in concept. Sort out the penalty fees and alot more people may go for them!

Generali

I guess the obvious thing is to go for the US system - Freddie Mac and Fannie Mae (no giggling in the cheap seats thx) providing liquidity for mortgage providers. You can easily and cheaply remortgage to a lower fixed rate if rates fall thus making the i/r a one way bet.

Addiscomber

mustrum_ridcully wrote: »

Unless you have a really long term fixed rate mortgage you will feel the effect perhaps even more than someone on a tracker.

Trouble is they are typically fixed for no more than 3/4years. IR's were at there lowest in 2003 (3.50%), so if someone bought a place in the summer of 2003 on a 4 year fixed rate they may be in for a surprise this summer as rates have increased by 150% since then.

I am sorry not to have been back to this thread, to be able to comment further on this.

As not everyone buys at the same time, and people choose different rate deals and fix for different lengths of time, at any one time only a proportion of people will be coming to the end of their fixed rate period. This is a considerably different situation to when the majority of people were on SVRs and affected immediately by any rate rise. As someone else described (sorry - cannot recall who it was) at one stage mortgage repayments were changing on an almost monthly basis for nearly everybody.

People need to understand that a fixed rate does not mean that one can take one's eye off the ball for that entire length of time, but need to be planning almost immediately for what happens at the end.

Generali,
Such long fixes have surely only been available quite recently? I tend to agree with you, though. How much better to have stability throughout the entire mortgage, provided of course that the rate is reasonable. I suspect that not many mortgage brokers will be suggesting them though. We came to the end of a fixed rate just after Christmas and have 10 years left to the end of our mortgage. The whole of market broker we consulted suggested that we go for a 2 year deal (I suspect to have the chance to earn more when we needed to go through the process again.) She was distinctly underwhelmed when we said that we wanted at least a 5 year deal, and was horrified when we eventually decided to go for a 10 year fix (at under 5%), simply because we knew that we would have an affordable monthly payment right to the end, whatever happenes to interest rates. The rapidly increasing size of arrangement fees were also part of our decision - we didn't want to be paying £600 or so every couple of years.

seven-day-weekend

A_Fool_&_His_Borrowed_Mon wrote: »

That rules out 99% of today's buyers then.

Know anyone who can buy a house on a prudent 3.5 X salary basis?

In the Midlands where I come from you can buy a decent two-bedroom flat in a reasonable area for £100,000. You can also get houses at this price if you are not too fussy about the area. I saw a really large ex-local authority one on rightmove, with three bedrooms, for £90,000 only recently.

You don't NEED to have 100% mortgage, even a 5% deposit is worthwhile.

It is do-able in many areas imho , you may have to lower your sights however and not expect a family home straightaway, or go for a more run-down area than would be your ideal.

My terraced house that we have owned for over 30 years is not in the best (or the worst) part of my home city, but buying it here in 1976 meant we were able to afford to live in it even when disaster struck and by not climbing the 'ladder' we had paid for it in our 40s. It would now sell for around £150,000. If we had climbed the 'ladder' to a 'posher' house in a 'nicer' area we would still be paying for it now and couldn't have afforded to retire to Spain in our 50s.

You pays your money, you takes your choice.

cupid_s

seven-day-weekend wrote: »

You don't NEED to have 100% mortgage, even a 5% deposit is worthwhile.

It is do-able in many areas imho , you may have to lower your sights however and not expect a family home straightaway, or go for a more run-down area than would be your ideal.

I agree. Whilst there is no question that houses are less affordable now than in the past, most people I know who don't have houses could afford one. We have a very low income (I think it is anyway!) yet we bought our house (and could still easily afford to do so today as the price has increased by 5k at most) and are planning to be mortgage free within 7 years of buying. We get told we are lucky to have our own house, then in the next breath they say they couldn't live in our area. We'll don't complain then!

I feel sorry for a lot of people further south though as houses are so much more expensive there. But for most areas in the midlands and further north there are affordable houses.

Generali

Addiscomber wrote: »

People need to understand that a fixed rate does not mean that one can take one's eye off the ball for that entire length of time, but need to be planning almost immediately for what happens at the end.

To be clear, I meant a 25 year fixed rate repayment mortgage. If you can't afford a repayment mortgage you can't afford the property except in limited circumstances (e.g. workers with guaranteed annual bonuses).

Addiscomber wrote: »

Generali,
Such long fixes have surely only been available quite recently? I tend to agree with you, though. How much better to have stability throughout the entire mortgage, provided of course that the rate is reasonable. I suspect that not many mortgage brokers will be suggesting them though. We came to the end of a fixed rate just after Christmas and have 10 years left to the end of our mortgage. The whole of market broker we consulted suggested that we go for a 2 year deal (I suspect to have the chance to earn more when we needed to go through the process again.) She was distinctly underwhelmed when we said that we wanted at least a 5 year deal, and was horrified when we eventually decided to go for a 10 year fix (at under 5%), simply because we knew that we would have an affordable monthly payment right to the end, whatever happenes to interest rates. The rapidly increasing size of arrangement fees were also part of our decision - we didn't want to be paying £600 or so every couple of years.

I understand that a friend of my father had one in the late 1960s.

You have done exactly the right thing IMO, even if rates go down to Japanese style 0.25% levels. On a current, risk adjusted basis it's the right thing to do.

pollyanna24

Ho hum, wish I'd taken a longer fix. I was scared that I wouldn't like the house and would end up selling it and running back to Mums (that's what happened with my first house anyways, didn't like the area, didn't scout enough, basically didn't do enough homework). However, I love it here and don't want to sell for the world. Just didn't know that at the time.

[Deleted User]

Addiscomber wrote: »

Such long fixes have surely only been available quite recently? I tend to agree with you, though. How much better to have stability throughout the entire mortgage, provided of course that the rate is reasonable. I suspect that not many mortgage brokers will be suggesting them though. We came to the end of a fixed rate just after Christmas and have 10 years left to the end of our mortgage. The whole of market broker we consulted suggested that we go for a 2 year deal (I suspect to have the chance to earn more when we needed to go through the process again.) She was distinctly underwhelmed when we said that we wanted at least a 5 year deal, and was horrified when we eventually decided to go for a 10 year fix (at under 5%), simply because we knew that we would have an affordable monthly payment right to the end, whatever happenes to interest rates. The rapidly increasing size of arrangement fees were also part of our decision - we didn't want to be paying £600 or so every couple of years.

Mortgage and financial advisors are exactly that they search the market and get you a good deal from what you say you want. They are not however Macro-economists or experts on financial risk. It so does make me laugh when people think well the financial advisor said i can afford a 6 times my wage mortgage so thats what im going to get as a house.

The banks do have mathemeticians working away heavily on these sorts of subjects. They will prob know that 70% of people earning X amount in certain types of jobs in certain areas wont be able to pay back and then get repossessed but they will also know that the 90% LTV attached to that postcode with a 2 year period before they stop being able to make repayments will get them back a house worth 110% and given its 500ks worth in notting hill they still make their money. The punters and the sales folk dont know that

Generali

Yant1 wrote: »

The banks do have mathemeticians working away heavily on these sorts of subjects. They will prob know that 70% of people earning X amount in certain types of jobs in certain areas wont be able to pay back and then get repossessed but they will also know that the 90% LTV attached to that postcode with a 2 year period before they stop being able to make repayments will get them back a house worth 110% and given its 500ks worth in notting hill they still make their money. The punters and the sales folk dont know that

It's worse than that actually. The mortgages that banks provide are then packaged up into a type of bond called a CDO and then sold on. So long as the CDO meets its minimum performance targets, the bank doesn't care whether or not you repay. The holder of the CDO takes the loss.

I wonder if there will be a new type of 'vulture fund' that will buy up cheap CDOs in times of economic distress and lean hard on defaulters to find the money.

[Deleted User]

Hmm I guess these vulture funds will do well when the interests rates go up