|
|
|
|
|
News
Nationwide Slashes Fixed Rate Mortgages
Lenders Make it Hard to Borrow
Variable Rates on the Up
Lending Still Strong
Interest Rate Cuts
Long Term Fixed Rate Mortgages
New Range of Mortgages
Bristol & West New Product
Bristol & West have a new product to help customers who want a better rate remortgage without paying valuation and remortgage legal fees. It is aimed at customers facing much higher payments when their fixed rate mortgage period comes to an end. It will be available up to 75% loan to value.
The product offers a 5.79% fixed rate for three years with a £699 arrangement fee with free legal work for remortgage customers and no valuation fee.
Also launched is a 6.09% buy to let three year fixed rate product no remortgage legal or valuation fees.
For this product the arrangement fee is £799 with a 75% loan to value and rental income cover will be calculated at 100% of the initial pay rate.
Borrower Leave Fixed Rates
Borrowers moved from fixed rate mortgages in October and fixed rate loans fell to 68%, 4% lower than September.
Statistics say that interest payments took a higher level of income with first time buyers paying 20.6% of their income towards mortgage interest, this was up 0.2% from September and is the highest level since 1991.
Borrowers who are about to come off fixed rate mortgages will have been helped by the fall in the bank rate with more cuts expected in the New Year.
Fixed Rate Mortgages Deserve a Second Look
Written by Joanne M. Friedman, MEd
In recent years, fixed rate mortgages have lost popularity as interest rates sank and home buyers were unwilling to pass up the opportunity to save on their mortgage payments even over the short term. The situation has begun to shift, however, and it’s time for buyers to take a closer look at the classic, Fixed Rate Mortgage as a serious option.
The Variable Rate Mortgage and all of its exotic and hybrid relatives has become the norm for simple economic reasons. In order to allow consumers to lock in an interest rate over a 2 to 25 year period (standard Fixed Rate Mortgage durations) banks and other lenders had to demand a higher interest rate overall. Remaining solvent is key for everyone in the money business, and it would not work for a lender to offer the lowest rate available and promise to maintain that rate without increase while interest rates overall are fluctuating wildly. Thus lenders have to make sure that rising rates won’t catch them short. Money lent at 6% for 30 years is tied up with no hope of more income being gained from it.
Variable Rate Mortgages, on the other hand, allow mortgage lenders to maximize profit at a time when rates are rising and allow borrowers to minimise risk as they can be assured that, depending on the formula they’ve opted for, their rate will be the lowest possible at any given time. A 3 year Fixed Rate Mortgage remains static for three years, then adjusts every year after that. If rates are rising, that’s three years at a lower rate before the borrower has to play catch-up at a higher rate. A 5 year Fixed Rate Mortgage is static for five years, and so on.
For the past decade, mortgage interest rates have dropped rapidly in response to several factors. As a result, the housing market has boomed, creating the “bubble” of rapid price increases and rabid new-home construction. With rates in the neighborhood of 5%, many buyers who couldn’t afford a £200,000 mortgage at a higher rate jumped into the market and locked in as many as 5 years at the lowest rate they could negotiate.
But if you believe the interest rate has bottomed out and the current trend is upwards then Fixed Rate Mortgages are a choice to be reckoned with., Given the direction mortgage interest rates are taking is more of a guess than a science then Fixed Rate Mortgages will remain popular at all times
Interestingly, Fixed Rate Mortgages have seen very minor interest-rate changes since 1971 apart from the well-known 80’s house price crash. Why is this critical? Because most home buyers in the current market are over-extended, having borrowed the maximum they could manage while interest rates were low enough to keep their mortgage payments within reach of their incomes. Judging by the reposession rate, few of them were wise enough to set up a saving plan that would ensure that when the rates rose and their mortgage payments jumped they’d have the money to either pay off the mortgage in its entirety or accommodate the higher numbers.
Refinancing has become a way of life for many borrowers. This might be the right time for a refinance if your mortgage payments will be beyond your ability to pay should the rate go to 9%, 10% or higher. Now is the time to make the calculations, take a hard look at the situation, and think about locking in that slightly higher but infinitely more stable rate for as many years as you think you’ll need. Make an appointment with your mortgage lender or a trusted mortgage broker and be merciless in your judgment. The cost of a remortgage with a long-term fixed rate mortgage as the goal might be just what you need to keep you and your family in your happy home.
Bank Split Over Rates
It was revealed in the November’s minutes of the Monetary Police Committee meeting that Sir John Gieve voted for a reduction in the base rate. Seven other members voted to keep the base rate at 5.75%.
The minutes stated that the effect of earlier rates rises were now beginning to show through the property market and were causing the market to have a slowdown. This was given as the reason for the need of a rate reduction.
It is not thought that the Bank of England are likely to lower the base rate this year but if it has not done so by February it is thought that people will call for ‘the governor’s head’.
Does APR Need to Change
Approximately seven out of ten advisers think that an alternative calculation to the annual percentage rate is required. Though 77% had not heard of the recent research of the dynamic annual rate.
These systems are different because the dynamic annual rate is calculated on the time the mortgage is likely to be held whereas the annual percentage rate calculates on the mortgage being held until it matures.
It is considered to be time for the change by some but others say that it would be complicated to calculate correctly the dynamic annual rate as there are too many variables and no one can calculate for the next five years let alone twenty.
Generally people really just want to know how much a mortgage will cost them each month.
Housing and Regeneration Bill
The Government’s proposed Housing and Regeneration Bill has had mixed thoughts from both the housing and mortgage industries.
The bill hopes to build 3,000,000 homes by 2020 and will create a Homes and Communities Agency providing more affordable and social housing.
The Association of Mortgage Intermediaries considers it necessary for more study to take place before proceeding. The European Commission is looking to take on a programme of work based on the credit market. But as the full impact is not clear the consequence of any changes may be dramatic.
Others agree saying the new agency should be an urban regeneration body only and not a housing developer.
The fact that the government want to cut red tape so the homes can be produced faster may also cause problems in so much as they may just be built with no thought to need or area.
Fewer Mortgage Products
At the start of 2007 the mortgage market was buoyant with 22 per cent more products on the market and new lenders entering the market.
Since July the number of residential and buy-to-let products has greatly reduced, in fact by 40 per cent.
Sub-prime business was one of the fastest growing areas in the market but is now in decline. Lenders have either pulled products completely or imposed restrictions on lending. There are around 16 per cent less prime products on offer now than at the beginning of the year. Partly explained by Northern Rock cutting its 230 products to 70 and the merger of Nationwide and Portman Building Society.
Lenders are being more careful and learning from the US crisis. With around 40 per cent less products on offer borrowers will have far less choice especially those who require a high loan to value product or with bad credit.
There could be more trouble ahead if house prices carry on falling or there is a rise in arrears.
Consider the Monthly Costs of a Home Before Buying
By Angela Baca
In a time where homeowners are facing foreclosure due to a slow economy and rising interest rates on their variable rate mortgages, you are considering buying a home. Now, more than ever, you need to be careful about taking on this responsibility. Your decision should include careful planning. Take a close look at your household budget before taking this important step towards financial security.
This article provides readers with a short list of costs to consider for the monthly household budget. These costs are incidental to owning and inhabiting a home.
1. Electric bill. How much will you pay for electricity? Consider additional expenses like oil and gas, depending on where you live.
2. Water and sewer bill. Will you pay for water? If you have water and sewer available, will you also be responsible for water and sewer assessments? If you will have well and septic, what will be your costs for maintenance and replacement of equipment, water softener service, and miscellaneous supplies like salt and chlorine tablets?
3. Insurance. How much will insurance cost you per month? Will you require additional coverages like hurricane and flood insurance?
4. Rubbish. Is this included in your property taxes or do you have to pay a monthly bill?
5. Council tax. What is the monthly cost of your Council tax?
6. Communications. What are the monthly costs of telephone, cable, and Internet access?
All of these expenses will increase your monthly budget for affording a home. Some of them are applicable to renters, but not all are expenses you are used to paying. These expenses add up to several hundred dollars a month. Keep that in mind when you decide what monthly mortgage payment you can afford. Plan the monthly budget carefully before buying a home.
Borrowers of Fixed Rates
According to research between 40,000 and 60,000 borrowers fixed rate mortgages will be ending by August 2008. The chance of all of these borrowers finding comparable deals is remote. Because of rising costs those who in the past have struggled to make repayments may find themselves falling into the sub-prime category.
This could mean they maybe declined or have high interest rates imposed on their next mortgage offer.
Research found that between now and 2010 around 3.7m people intended to borrow over four times their income and 4.5m wanted mortgages of between three and four times their salary.
In the present climate lenders may not be willing to take these sorts of risks.
125% Mortgages
Lenders are being blasted for lending six times salary and giving 125% mortgages.
Trouble can be expected it is thought if this trend continues but lenders say they do it so as not to lose business.
Also blasted were the schemes that buy houses and allow owners to live there charging them extortionate rents.
Affordability
It now costs around 350% more to become a house owner in Great Britain than in 1996.
First time buyer couples now would have to save 96% of joint take home pay if they were on earnings of £25,899 to pay the necessary £25,600 needed to buy to average home, deposit and stamp duty. This is a 21% rise since 1996.
The cost of mortgage repayments has also risen from 38%of combined wages in the first quarter of 2007 to 44% in second quarter.
London is the most difficult place to buy property and has the worst affordability levels. It now costs a couple 51% of take home pay for repayments whereas the figure is only 33% in Yorkshire and Humberside.
It is thought that affordability problems have almost reached a peak. First time buyers may find it easier to purchase property late in 2008.
Borrowers in Arrears
By missing payments and going into arrears could cost borrowers a lot. There are a number of charges that are added by lenders when payments are missed.
Some lenders give one months grace but others charge from £20 to £50.
Lenders may also charge for debt counselling although this can be obtained free from the Citizens Advice Bureaux and borrowers may be charged for calls or letters from their lenders.
The question arising is ‘are borrowers being fairly treated’ given the wider range of penalty fees that are charged. Rules under the Mortgage Conduct of Business, regulated by the Financial Services Authority state all financial hardship cases must be treated sympathetically.
It is felt that lenders should assess each case and help borrowers to repay money owed.
Borrowers to Benefit
It has been said that people will have to pay more for mortgages because of the financial turmoil of late. Others do not think this is likely to be the case for mainstream borrowers.
Around two months ago it was thought that base rate would rise but now the talk is when will it drop. It is now believed by the end of the first quarter of 2008 base rate will be no more than 5.5% and could possibly be less.
Most borrowers will benefit in terms of mortgage rates like those with fixed rate mortgages have already seen and it is expected that tracker rates will follow soon.
The economic crisis has damaged banks and savings but not mortgages and there has not been a fall in mortgage enquiries.
Chancellor’s Push to 10yr Fixed Rate Mortgages
Experts are wary of the Chancellors proposal for making it easier for lenders to finance ten year fixed mortgages.
These have been on the market for a while but are not that popular. Many prefer to take out two or three year fixed rates because of the ever changing interest rates as well as the charges imposed for early repayments or change of lender.
With rates likely to come down they will not be as attractive as they would have been before August 2006.
The benefit of a long term fixed rate is the security of having an affordable mortgage for several years but against that is the cost if rates should fall dramatically.
Fixed Clients Better Off
Experts consider that those borrowers whose two year fixed mortgages were coming to an end would be better off than they were a few months ago.
Recent movement in the Swap rates market had improved the situation, as the rates are better than they were in July.
Lower rates are now available for a higher fee that can be added to the mortgage.
Fixed Mortgage Rates Predicted to End
Up to 60,000 households will see their fixed rate deals end by August 2008
Those who may be considered in the sub-prime sector could find it difficult to get a similar deal, as they will be considered a risk.
With general consume debts rising there are a greater number who are struggling to make repayments. This will have given them adverse credit and put them into the sub-prime sector, meaning they could be declined or have to pay much higher rates.
Research shows between 2007 and 2010, 3.7m people expect to take out a mortgage 4 times their salary with another 4.5m intending to borrow around 3 to 4 times their salary. At the moment many lenders will not necessarily be willing to take on this type of risk.
It is imperative that those wishing to take out a mortgage search for the best deal possible.
Fixed Rate Mortgages
Those with a fixed rate mortgage that is about to end will definitely notice a difference in their repayment costs.
The bank rate has risen five times in the past year and the low rates are no longer on offer from the lenders.
The choice is to either stay with the present mortgage paying the lenders standard variable rate or to look round for a better offer.
Fixed rate mortgages are good for those who are on a budget as they give the peace of mind because throughout the offer period the monthly repayments will not change bearing in mind that if the rates should come down the same rate will still apply.
A variable mortgage will rise and fall with the bank rate, great if the rates come down but not so good if they increase further. The best idea is look into the whole deal, the borrowers needs and financial stability both now and long term, the fees and expenses that are likely to be incurred remembering that the cheapest rate is not the best rate for everybody.
Green Grants
Most people, according to the Dept of Communities and Local Government, do not know of the grants that are available towards the cost of lost and cavity wall insulation.
Average grants of £100 - £300 are available and even more for those on state benefits.
Help with energy saving light bulbs and draft proofing is sometimes on offer as well.
If these were taken up it would help to keep the country ‘green’ and save considerable amounts on fuel bills.
Homeowners Choose Remortgages
Mortgage lending for residential purchases has fallen by 12% in the last six months according to some lenders but the proportion of re-mortgages has grown showing that householders are re-mortgaging as opposed to moving.
These facts are interesting and point to the fact that, with the house market slowing, less people are taking mortgages for new purchases.
Also with re-mortgaging people are borrowing less with loan to value falling from 65.81% in August to 49.01% in September.
Risk Awareness
It has been said that since the credit crunch the automated valuation model has been used more as the market tightens because of risks.
The large financial lending companies, rating agencies and investors were all rushing to assess their portfolio values and risks.
A big demand has arisen from lenders wanting risk analysis as lenders and portfolio managers want risk and losses for each property assessed with more accuracy.
Fixed Rate Mortgages - Swap Shop
As a result of the fall in swap rates around ten lenders have dropped fixed rate mortgages by up to 0.4%.
Inflation data is lower than expected and will help keep the Bank of England’s rates down.
During August the consumer price index fell by 0.1% from July but the retail price index, which includes mortgages, rose to 4.1% from 3.8%.
Borrowing is now becoming cheaper. Fixed rates are not as low as they were a few years ago but are better than variable rates.
Short-term swap rates are filtering through and lenders are expected to lower their short term fixed rate products in the next few weeks. Those coming off fixed rates will still get a shock because they will not be as low as the 3.5% to 4.5% they have been paying.
The Libor rate also dropped in September and the three-month Libor fell from 6.9025 to 6.88 last week.
Lenders are lowering rates as it is cheaper for them to borrow money at the moment but otherwise it is quiet with no new launches coming on the market.
Lenders are reducing interest rates but at the same time tightening up on criteria and will possibly put on extra charges or increase penalties. Also some lenders have increased their arrangement fees.
The affordability issue
First time buyers borrow twice as much as they did four years ago. Loans for first time buyers leapt from £75,000 to £130,000 in four years. 53% of mortgages for first time buyers are over £150,000 the percentage in 2003 was only 16%.
People whose fixed rate term of mortgage is coming to an end will notice the big rise in repayments when they remortgage the rates they had of around 4% are no longer available.
In 2003 16.6% of peoples incomes went on mortgage repayments, in 2006 it had risen to 18.6%. 2007 will bring even higher percentages because of the bank rate rises.
Will borrowers claim
In the next few months almost one million people will be coming to the end of their fixed rate mortgages. The majority will remortgage the rest will claim that they were sold mortgages they were going to be unable to afford. Those already overstretched will find it difficult to afford a higher rate loan. Lower rates made it cheap to borrow on property but low inflation together with high house prices means that paying debts becomes difficult.
Lower rates made it cheap to borrow on property but low inflation together with high house prices means that paying debts becomes difficult.
Borrowers tend to have fixed rates when the rates are high and choose variable rates when the rates fall. This will usually mean that those who were drawn to the lower rates could be the first to feel the pinch as the market varies.
When cheaper mortgages became available in 2003 people rushed to obtain one and would not have been warned about rising rates. There is a good chance that if they were to claim that the complaint would be judged their favour.
|
|
|
