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Debate House Prices
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Average fixed-rate mortgages to go up again - highest in a decade
Comments
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I think you'll find that when you take into account the hefty 'arrangement fee' (which borrowers typically roll into the loan) and realise that the whole deal is 'front end loaded' you'll see that nett, you are very little better off after the first two years. Especially since there will be another arrangement fee for the next 'deal and even if you go to SVR there's often a fee payable then too.
Yes of course you're little better off after the first two years. That is simply because the first two years are when you pay least off the capital. If you then remortgage but keep the term the same (as most people do) you just pick up where you left off i.e. paying an increasing amount of capital.
You can do that quite safely for example 12 times on a 25 year mortgage and pay off the loan.
The only consideration really is about the fees and how large in relation to the remaining mortgage they are. Clearly as the term continues and the amount outstanding reduces (something you seem to be claiming doesn't happen) the fees become too large a proportion of the total debt for it to be worthwhile remortgaging to a high fee product. That has always been the case though.
I've not heard of a lender charging a second fee for when your introductory offer finishes and you move onto SVR from your "teaser rate" so I'm not sure why you imply this would happen.0 -
I think this a very strong argument for waiting until prices have fallen substantially further, as it is generally accepted they will do, before buying - as a FTB at least.
The more prices fall, the less you have to pay, at any interest rate.0 -
Cheap and easy borrowing is now so deeply ingrained into the culture of anyone below about 35 that when it goes it really is going to leave them struggling to cope with the realities of living within your means.
"Ingrained in anyone below 35"
I'm 34 and although cheap and easy credit has been available in the last 10-15 years, it really has nothing to do with if you have learned the personal tools of living within your means.
I have debt, but my only debt is my mortgage. I doubt that only the minority would be able to live without this debt at some point if they are to buy their property.
People should always live within their means and not rely on regulations to keep them in check:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0 -
I think this a very strong argument for waiting until prices have fallen substantially further, as it is generally accepted they will do, before buying - as a FTB at least.
The more prices fall, the less you have to pay, at any interest rate.
What is? That fixed interest rates are higher than in the recent past?
I'd say whether interest rates are higher or not if prices are falling it's generally a good idea to wait. Real life and personal issues not withstanding of course.
Like m00m00 said....they'll be much better off over the term of the mortgage if they go in at a 20% lower price.
interest rates change all the time, purchase price is fixed at the point of purchase.0 -
JonnyBravo wrote: »Yes of course you're little better off after the first two years. That is simply because the first two years are when you pay least off the capital. If you then remortgage but keep the term the same (as most people do) you just pick up where you left off i.e. paying an increasing amount of capital.
You can do that quite safely for example 12 times on a 25 year mortgage and pay off the loan.
The only consideration really is about the fees and how large in relation to the remaining mortgage they are. Clearly as the term continues and the amount outstanding reduces (something you seem to be claiming doesn't happen) the fees become too large a proportion of the total debt for it to be worthwhile remortgaging to a high fee product. That has always been the case though.
I've not heard of a lender charging a second fee for when your introductory offer finishes and you move onto SVR from your "teaser rate" so I'm not sure why you imply this would happen.
And that's the thing... FTB takes on huge mortgage because 2-year fix makes it look 'affordable'. Pays hefty arrangement fee, probably rolled into the mortgage.
If you do the sums when the first two years are up then very little has been chipped off the capital. Even assuming that HPI or finance market conditions allow for another 'deal' then there's a hefty fee to pay on that too which means that unless you can up your payments then even another two years down the line you've made very little progress indeed in paying down the capital.
If you can't get another cheap fix
then you go onto the higher rate and are shafted.
Short term fixes only make sense if you can comfortably pay the mortgage anyway and can hence take advance of the low, fixed rate to make some useful overpayments. However, in practice fixes have been used to get people onto a debt hook that they can't really afford as FTBs borrow to the max. They have been offered as loss leaders by various companies to get market share and now that the market has turned, the trend is away from 2-year fixes.
As for the fee when going on to SVR from fixed, happened to a workmate of mine and that was before the credit crunch. He recieved a letter that his fix was up in 2 months time and if he didn't make new arrangements etc etc he'd go on to the SVR with a couple of hundred quid admin fee (rolled into the mortgage) to cover the process of transferring over to the SVR.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
And that's the thing... FTB takes on huge mortgage because 2-year fix makes it look 'affordable'. Pays hefty arrangement fee, probably rolled into the mortgage.
If you do the sums when the first two years are up then very little has been chipped off the capital. Even assuming that HPI or finance market conditions allow for another 'deal' then there's a hefty fee to pay on that too which means that unless you can up your payments then even another two years down the line you've made very little progress indeed in paying down the capital.
Depends on your definition of progress. For each year that goes by you make progressively more "progress", so you're really weren't correct in your original declaration.If you can't get another cheap fix then you go onto the higher rate and are shafted.
Short term fixes only make sense if you can comfortably pay the mortgage anyway and can hence take advance of the low, fixed rate to make some useful overpayments. However, in practice fixes have been used to get people onto a debt hook that they can't really afford as FTBs borrow to the max. They have been offered as loss leaders by various companies to get market share and now that the market has turned, the trend is away from 2-year fixes.
Agreed.
But this is away from your original point that if you stay on two year deals you can't pay off your mortgage.
Plus the high fees are a relatively new thing. 2 year fixes were as cheap as any other deal until only 2 or 3 years ago. How do I know? I'd been using them quite safely and successfully. As with most others I'm moving away from them now simply as the charges have become disproportionate for all but those with the largest mortgages..... (yet manageable LTV's and payments)As for the fee when going on to SVR from fixed, happened to a workmate of mine and that was before the credit crunch. He recieved a letter that his fix was up in 2 months time and if he didn't make new arrangements etc etc he'd go on to the SVR with a couple of hundred quid admin fee (rolled into the mortgage) to cover the process of transferring over to the SVR.
Well he got well and truly shafted there. It must have been a sub prime mortgage. I've never seen such a term (admittedly I'm a prime borrower) and wouldn't sign up to anything with such a ridiculous charge.
Who was the lender?0 -
JonnyBravo wrote: »But this is away from your original point that if you stay on two year deals you can't pay off your mortgage.
Plus the high fees are a relatively new thing. 2 year fixes were as cheap as any other deal until only 2 or 3 years ago. How do I know? I'd been using them quite safely and successfully. As with most others I'm moving away from them now simply as the charges have become disproportionate for all but those with the largest mortgages..... (yet manageable LTV's and payments)
OK, perhaps 'never pay off your mortgage' was a bit over the top but the average pleb on a 2-year fix (because it's the only way to make the repayments affordable) is going to make very little progress indeed over each 2 year period unless they can up the payments on the next fix, have enough spare cash to pay the charges up front, or overpay.
They were products offered as a loss leader to hook people in but they ended up being used as a justification for borrowing way too much and certain borrowers literally got 'hooked' on them.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
I think you'll find that when you take into account the hefty 'arrangement fee' (which borrowers typically roll into the loan) and realise that the whole deal is 'front end loaded' you'll see that nett, you are very little better off after the first two years. Especially since there will be another arrangement fee for the next 'deal and even if you go to SVR there's often a fee payable then too.
Have just taken a new 5 year Fixed rate deal with no arrangement fee.0 -
OK, perhaps 'never pay off your mortgage' was a bit over the top .
Agreed.but the average pleb on a 2-year fix (because it's the only way to make the repayments affordable) is going to make very little progress indeed over each 2 year period unless they can up the payments on the next fix, have enough spare cash to pay the charges up front, or overpay.
No NO NO NO.
They will make an increasing contribution over each two year period. (unless, as previously stated, they change something eg the term or the amount owed)
It's just that with the products around in the last 2 or 3 years it will become not worth remrtgaging as the fee for the deal will outweigh the savings. ie the fee is disproportionately large compared to the remaining debt.They were products offered as a loss leader to hook people in but they ended up being used as a justification for borrowing way too much and certain borrowers literally got 'hooked' on them.
Agreed.
Anyhow.... who was this lender who charged to go onto SVR at the end of a deal? Or was this an apocryphal tale... either on your colleagues part or your own?0 -
JonnyBravo wrote: »Anyhow.... who was this lender who charged to go onto SVR at the end of a deal? Or was this an apocryphal tale... either on your colleagues part or your own?
It was a colleague who remortgaged last year. I'm not going to track him down and plague him with questions about his finances but he was fairly livid when he got the letter.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0
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