Posts Tagged ‘mortgage’

Mortgage interest rate forecast

August 18th, 2009

In the last 6 to 12 months most people with mortgages have benefited from low interest rates, but this can not go on forever, there will come a time when rates increase again.  We have been reviewing comments from financial analysts and economists to understand what is likely to happen to mortgage interest rates in the next 2 years.

Firstly it is worth looking at those fortunate people who have been paying 0% (not sure if paying is the right word here) on their mortgage.  Typically those with Birmingham Midshires, HBOS and Co-op.  In most cases these were discount tracker mortgages where they tracked the bank base rate minus 0.5% or more – but with a minimum of 0% payable, otherwise the banks would be paying some people to have the mortgage!  These tracker rates will soon come to an end, most during 2009, after this the rates will revert to either the lender’s standard variable rate (SVR) or at a bank base rate plus a percentage.  Typically borrowers can expect their rates to recover to around a current level of 4% to 5%.

Key for almost all borrowers will be what happens to the bank base rate, currently at 0.5%.  We have been searching for analyst views on this and overall it seems to be good news for borrowers.  The mid point of views we found was from Deutsche Bank (George Buckley) who are forecasting that base rates will stay at 0.5% until mid 2010 after which they will increase to 0.75%.

More pessimistic economists are predicting that base rates will start to rise from late 2009, hitting 1.25% by mid 2010 and 4% by the end of 2011. The most optimistic are saying that base rates will remain at 0.5% until the end of 2010 before they start to increase in 2011.

Overall it seems that low interest rates will be around for another year but we all need to be prepared for future increases.  This could become a major issue for some, after paying abnormally low interest on their mortgage for a long period of time it may become difficult to adjust to paying “normal” mortgage interest rates of 5% or more.

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Bank of China Mortgage

July 25th, 2009

We’ve been used to the proliferation of Chinese restaurants, now almost on every high street, then Chinese imports as their economy flourishes.  Now Bank of China Mortgages are here, maybe they see the UK as a great opportunity?

There has been much publicity regarding UK banks and the higher mortgages costs, lack of availability, etc, and we have blogged about them here.  but maybe, just maybe, the Bank of China could start to change the banking market for the better by introducing much needed competition and more cash.

The Bank of China will offer mortgages to both Buy-To-Let investors and homeowners, with mortgages starting at around 2.5% over BBR (which is an effective rate of 3% as at July 2009).  As yet we do not have details on the all-important loan-to-value (LTV) they will be offering, but it cannot be any worse then the UK banks are currently offering, and hopefully much better.

But dint think it is just a simple process of going to your current mortgage broker as they may not be able to access the Bank of China, it is understood that the mortgages will initially be brokered through Savills, and the Legal & General Mortgage Club.  Other brokers are expected to be appointed by the Bank, but it seems not all brokers will have access. 

Lets hope this move the the Chinese Bank will provide a much-needed shake up of the UK banking system and kick-start the mortgage lending to help with the recovery of our battered property market.

Here are some contact details of brokers providing access to mortgages with non-UK banks….

  • Savills – 0870 900 7762
  • Legal & General Mortgage Club – 01226 230504
  • LargeMortgageLoansUK – 020 7519 4900

Looking for buy-to-let properties?  BMV Properties at discounts to todays valuation? << click here

Before letting don’t forget to check tenant backround for financial risk? << click here

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Property remortgaging – beware

July 23rd, 2009

Some lenders are offering exiting property owners the opportunity, after their existing mortgage deal comes to an end, to remortgage onto what appear to be quite attractive rates.  Beware.

At first glance some of the mortgage deals look great.  A 95% LTV (loan to valuation), one year fixed rate of 3.59%, followed by the lender’s standard variable rate (SVR) of 3.99%. Sounds tempting doesn’t it?

The reality is that the new SVR being offered by lenders is often a much worse deal than the current SVR.  For example at Nationwide many existing mortgages are based on an SVR that tracks 2% over the bank base rate (BBR), thus you would currently be paying 2.5%.  The new Nationwide SVR being offered is currently 3.99%, a massive 1.49% higher!

The message here is to make sure you read the small print on not just the new mortgage offer, but also your current mortgage – you may find that you will be better off not changing your mortgage.  Remember, the banks are still licking their wounds following the onset of the credit crunch, they are keen to improve their bottom line profits, so check very carefully before you take up what appears to be a great offer.

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Mortgage interest rates increasing

July 14th, 2009

Many people take out fixed rate mortgages to help manage costs and avoid monthly changes in interest rates, those that get the timing right can also lock into low fixed-rate deals over a number of years.  But evidence now shows that the average fixed rate mortgages are increasing at a time when the cost of money has fallen, the banks are in effect increasing their profit margins on mortgages.

Taking a look at the actual numbers, the average fixed rate as of 13 July 2009 was 5.16 pc.  This compares to a fall in 2 year “swap rates” (effectively the cost to banks for borrowing over a 2 year period)  from their recent peak of 2.51 pc to 2.05 pc as of 13 July 2009.  Clearly the banks are increasing their margins on mortgages.

The bottom line is that borrowers need to think carefully when taking out a fixed rate mortgage, maybe now is not the best time.  Clearly the bank base rates will increase from their low of 0.5%, but the markets are reflecting their views on the future cost of money by the falling 2 year swap rates.

Please note, this blog does not provide financial advice, it only publishes views on what it sees happening in the market.  Before deciding on a mortgage speak to a financial or mortgage advisor.

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125% mortgages are back!

July 9th, 2009

Nationwide has announced that it will provide mortgages at 125% of a property’s value – although there are restrictions.

The 125% mortgage will only be provided to those who are “existing customers” of Nationwide that are in “negative equity” and want to move house.  Nationwide also added that not all of their customers in negative equity would qualify, it would be restricted subject to individual circumstances.

It is also interesting to note that the FSA (Financial Services Authority) is considering future regulation to limit mortgages to 100% of a property’s value.  This makes sense, otherwise the amount of mortgage in excess of the property’s value is really an “unsecured loan” and not a mortgage secured against a property.

Until the FSA mortgage regulation is implemented lenders can still provide mortgages over 100%.  To some it may seem reckless of he Nationwide to provide a 125% mortgage, but is it?  The Nationwide’s view seems to be that as their customer already has negative equity in their current home, they are simply allowing them to carry that negative equity to their new home, so overall they still have the same amount of mortgage risk e.g. if there was £30,000 of negative equity on the original house, then there will still be £30,000 of negative equity on the new house.

Overall a positive move by Nationwide, it helps to get some movement in the housing market and of course they charge a higher interest rate, so they are not losing out!

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