Fixed rate mortgages below 2% axed from the market as interest rates continue to rise

kingstreet

Sarah1Mitty2 said:

Thrugelmir said:

redundantmortgage said:

The point is that if the banks really thought interest rates would hit double digits in the near future then they would be offering people 10 year fixes at 2.39%.

Banks make a margin on what they lend. The BOE base rate is of no consequence. What matters is the cost to the bank of the funding. If it's fixed for 10 years then so is the bank's profit margin. With a 10 year fix less ongoing costly administration. 

How can a bank fix it`s funding costs for ten years?

By using a rate swap bought in the money market as already happens on shorter-term fixed rates.

Windofchange

I've not read this thread through properly, but unless I have mistaken something at lower LTVs (75% or better) I can still see plenty of deals at 1.2% or close to. We just fixed at 1.7% for 5 years on a 80% LTV, and doing some very back of cigarette packet calculations rates will need to rise to around 4% before we see any increase in our monthly outgoings when we get a new deal in 5 years time due to the equity we will have paid off. I think this is the point that I would make in that if you are already in the market you are pretty well shielded unless things really kick off.

400k loan at 2% = £1696 per month 25 years left when taken out
320k loan at 4% = £1983 per month 20 years left when taken out
240k loan at 6% = £2026 per month 15 years left when taken out
160k loan at 8% = £1941 per month 10 years left when taken out
80k loan at 10% = £1700 per month for 5 years to pay it off

This assumes a linear 2% increase in mortgage rate every 5 years each time you remortgage. Looking at the above the jump in monthly payments is really nothing to be overly worried about, and of course most people will see a pay rise each year as per usual. For us, the recent pay rise we had back end of last year is double the increase in our monthly mortgage payment due to us cutting the term and getting a 5 year rather than 2 year deal. We will have another 4 x pay rises (NHS so fingers crossed) before we re-mortgage again when I'm sure our current monthly mortgage payment will seem quite insignificant. 

Surely the only risk to existing home owners is if interest rates shoot up very rapidly - so heading from loans at 2% today to say 10% tomorrow. In the instance of the above, the 320k loan at 10% would cost £3,088 per month which would be a nasty shock but for us personally wouldn't put us in financial difficulty to the point of needing to sell up. How realistic is it that rates will increase 8% overnight? I would say virtually zero chance. Even long term I would say near enough to zero that I don't lose any sleep over it.

Surely the best thing to do if you are able is to get a mortgage and get on with paying it down so as you build your ability to withstand interest rate rises? Waiting it out because the market might fall is a mugs game in my view. People said to us two years ago wait and see because the C19 pandemic will destroy the housing market. We ignored it at went ahead as we wanted a home and it got revalued for our remortgage some 70k more than what we paid two years back. Lucky I guess, but it highlights for me the pointlessness of trying to second guess what the property / mortgage market will do! 

Slithery

Sarah1Mitty2 said:

Thrugelmir said:

redundantmortgage said:

The point is that if the banks really thought interest rates would hit double digits in the near future then they would be offering people 10 year fixes at 2.39%.

Banks make a margin on what they lend. The BOE base rate is of no consequence. What matters is the cost to the bank of the funding. If it's fixed for 10 years then so is the bank's profit margin. With a 10 year fix less ongoing costly administration. 

How can a bank fix it`s funding costs for ten years?

In exactly the same way that everyone else does. They buy loans that are fixed at a certain rate for the lifetime of the term.

donutandbeer

Windofchange said:

I've not read this thread through properly, but unless I have mistaken something at lower LTVs (75% or better) I can still see plenty of deals at 1.2% or close to. We just fixed at 1.7% for 5 years on a 80% LTV, and doing some very back of cigarette packet calculations rates will need to rise to around 4% before we see any increase in our monthly outgoings when we get a new deal in 5 years time due to the equity we will have paid off. I think this is the point that I would make in that if you are already in the market you are pretty well shielded unless things really kick off.

400k loan at 2% = £1696 per month 25 years left when taken out
320k loan at 4% = £1983 per month 20 years left when taken out
240k loan at 6% = £2026 per month 15 years left when taken out
160k loan at 8% = £1941 per month 10 years left when taken out
80k loan at 10% = £1700 per month for 5 years to pay it off

This assumes a linear 2% increase in mortgage rate every 5 years each time you remortgage. Looking at the above the jump in monthly payments is really nothing to be overly worried about, and of course most people will see a pay rise each year as per usual. For us, the recent pay rise we had back end of last year is double the increase in our monthly mortgage payment due to us cutting the term and getting a 5 year rather than 2 year deal. We will have another 4 x pay rises (NHS so fingers crossed) before we re-mortgage again when I'm sure our current monthly mortgage payment will seem quite insignificant. 

Surely the only risk to existing home owners is if interest rates shoot up very rapidly - so heading from loans at 2% today to say 10% tomorrow. In the instance of the above, the 320k loan at 10% would cost £3,088 per month which would be a nasty shock but for us personally wouldn't put us in financial difficulty to the point of needing to sell up. How realistic is it that rates will increase 8% overnight? I would say virtually zero chance. Even long term I would say near enough to zero that I don't lose any sleep over it.

Surely the best thing to do if you are able is to get a mortgage and get on with paying it down so as you build your ability to withstand interest rate rises? Waiting it out because the market might fall is a mugs game in my view. People said to us two years ago wait and see because the C19 pandemic will destroy the housing market. We ignored it at went ahead as we wanted a home and it got revalued for our remortgage some 70k more than what we paid two years back. Lucky I guess, but it highlights for me the pointlessness of trying to second guess what the property / mortgage market will do! 

Hi, where did you find the deals that are below 2%? We are buying and thinking of getting a very small mortgage (10% LTV) but the lowest interest rate we can see on our portfolio on our mortgage advisor website is 2.45%. Two months ago it was 2.2% so a 0.2% increase in the last two months. We are now keen to buy with cash because of the interest rate… 

kingstreet

Lowest fix on my sourcing system is 2.25%. There are a number of sub-2% discount products, lowest 1.29%.

Windofchange

donutandbeer said:

Hi, where did you find the deals that are below 2%? We are buying and thinking of getting a very small mortgage (10% LTV) but the lowest interest rate we can see on our portfolio on our mortgage advisor website is 2.45%. Two months ago it was 2.2% so a 0.2% increase in the last two months. We are now keen to buy with cash because of the interest rate… 

The MSE mortgage Best Buy comparison site:

https://www.moneysavingexpert.com/mortgages/best-buys/

Top one there is 0.99% for 24 months from progressive through a broker only. 

Sarah1Mitty2

lookstraightahead said:

cheshirelabrador said:

theartfullodger said:

In November 1979 under Thatcher's government BoE base rate hit 17%.

I had a for then large mortgage. Was "lucky" as building society only demanded 15%...

Good luck you young folk...Could get much worse

But if you've been saving for a deposit at the time the base rate hit 17%, you would have seen your savings increase at a rapid rate.

You didn't need a deposit. Might sound good but it truly wasn't. 

Why didn`t you need a deposit, and why was that not good?

kingstreet

Windofchange said:

donutandbeer said:

Hi, where did you find the deals that are below 2%? We are buying and thinking of getting a very small mortgage (10% LTV) but the lowest interest rate we can see on our portfolio on our mortgage advisor website is 2.45%. Two months ago it was 2.2% so a 0.2% increase in the last two months. We are now keen to buy with cash because of the interest rate… 

The MSE mortgage Best Buy comparison site:

https://www.moneysavingexpert.com/mortgages/best-buys/

Top one there is 0.99% for 24 months from progressive through a broker only. 

Norther Ireland brokers only as it's a Belfast-based BS.

Sarah1Mitty2

kingstreet said:

Windofchange said:

donutandbeer said:

Hi, where did you find the deals that are below 2%? We are buying and thinking of getting a very small mortgage (10% LTV) but the lowest interest rate we can see on our portfolio on our mortgage advisor website is 2.45%. Two months ago it was 2.2% so a 0.2% increase in the last two months. We are now keen to buy with cash because of the interest rate… 

The MSE mortgage Best Buy comparison site:

https://www.moneysavingexpert.com/mortgages/best-buys/

Top one there is 0.99% for 24 months from progressive through a broker only. 

Norther Ireland brokers only as it's a Belfast-based BS.

How much deposit would you need to get that?

MovingForwards

Sarah1Mitty2 said:

lookstraightahead said:

cheshirelabrador said:

theartfullodger said:

In November 1979 under Thatcher's government BoE base rate hit 17%.

I had a for then large mortgage. Was "lucky" as building society only demanded 15%...

Good luck you young folk...Could get much worse

But if you've been saving for a deposit at the time the base rate hit 17%, you would have seen your savings increase at a rapid rate.

You didn't need a deposit. Might sound good but it truly wasn't. 

Why didn`t you need a deposit, and why was that not good?

There was 100% 110% mortgages, meaning no deposit and an extra loan on top for doing repairs, buying furniture etc. 

It's bad as any reduction in property prices saw people drop into negative equity IE the mortgage is more than the house is worth.

Several members have spoken about their experiences during these times, waiting it out and taking years to slowing edge into having equity.